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Avalere Analysis Highlights Complexities of Transitioning Medicare Part B Drugs into Part D

Summary

Moving certain Part B drugs to Part D, a proposal being evaluated by the Trump administration, would have disparate financial impacts on patients.

A new analysis from Avalere finds that Medicare patients’ out-of-pocket costs for new cancer therapies can vary substantially based on whether a drug is covered by Part B or Part D, due to differing benefit designs and the use of supplemental health coverage. In 2016, average out-of-pocket costs were about 33% higher for Part D-covered new cancer therapies ($3,200) than for those covered in Part B ($2,400).

Drugs are covered by Medicare Part B or Part D depending on how the drug is administered. In Part D, a complex benefit design structure requires a degree of patient out-of-pocket spending for those not qualifying for low-income cost-sharing subsidies (LIS). In Part B fee for service (FFS), beneficiaries pay a 20% coinsurance on all medical services, including drugs. Most patients, however, have some type of supplemental medical insurance (e.g., Medigap, employer plans) to cover this coinsurance amount. CMS caps coinsurance for Part D plan specialty tiers at 33%, but cost-sharing for non-preferred drug tiers can be close to 50%.

“Medicare beneficiaries typically have lower out-of-pocket costs in Part B—especially since so many seniors carry supplemental coverage,” said Richard Kane, senior director at Avalere. “Any proposal for shifting drugs to Part D needs to account for these differences.”

In both Part B and Part D, patients can be exposed to high cost-sharing because there is no required out-of-pocket maximum in either program. In Part D, we found that 72% of the 20,000 patients receiving new cancer therapies in 2016 were non-LIS; this group of patients paid $4,400, on average, in out-of-pocket costs. In Part B FFS, we found 15,000 patients receiving new cancer therapies; we estimate that 25% of them had no supplemental coverage and thus paid $9,700, on average, out-of-pocket.

As the Trump administration evaluates the potential cost savings from transitioning certain Part B drugs into Part D (as articulated in the Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs), the effect on beneficiary out-of-pocket costs is an important consideration. Our analysis suggests that if new cancer therapies or any high-cost drug therapies are switched from Part B to Part D, many Medicare patients would pay more out-of-pocket because they purchase supplemental health coverage for Part B medical services and are not eligible for LIS in Part D. However, Medicare patients that do not have supplemental health coverage would pay less out-of-pocket from such a switch, especially if they were eligible for LIS.

Understanding the impact is made complex by the interplay of numerous factors that influence patient out-of-pocket costs, including drug price, mix of the drugs used by a patient, a beneficiary’s income level, and whether a beneficiary has Part D coverage or supplemental health insurance, among others. Another factor to consider is that shifting Part B drugs into Part D could put upward pressure on Part D premiums that may not be fully offset by a decrease in Part B premiums, because the Part B program pays for both drugs and physician services.

“Beneficiary out-of-pocket costs under Part B and Part D are based on a combination of many factors,” said Matt Brow, executive vice president at Avalere. “The financial impact of a transition of certain Part B drugs into Part D would not be uniform across patients, but rather will differ for particular groups of beneficiaries.”

Methodology

Avalere analyzed prescription drug event (PDE) data and Medicare Part B FFS claims for 2016 under a CMS research data use agreement. We analyzed a cohort of patients representing less than 20% of total beneficiaries; this cohort included beneficiaries we identified as receiving new cancer treatments during 2016. We defined new cancer therapies based on new FDA indications approved in 2015 or 2016; our source for this list of new indications was the list of drugs eligible for the Novel Therapy Adjustment (NTA) in the Medicare Oncology Care Model (OCM).

We identified a patient was receiving a new Part D therapy if they had two or more PDE events for the drug, and a Part B E&M visit with a diagnosis for the corresponding indication. We identified a patient was receiving a new Part B therapy based on if they had two or more Part B claims for the drug with a diagnosis for the corresponding indication. Average per enrollee total drug costs for new Part D therapies was $70,000. Average per enrollee total drug costs for new Part B therapies was $48,000. We used the PDE data to estimate the amount patients paid out-of-pocket for Part D therapies. We used FFS claims data to estimate the beneficiary liability for Part B therapies, and then assumed the share of patients without supplemental coverage was similar for this group of patients as for all Medicare Part B enrollees.

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