Medicare Part D - 2008 Summary of Plans

The Annual Enrollment Period (AEP) for Part C and Part D plans, which began on November 15, is the time of the year when all Medicare beneficiaries may change how they receive their prescription drug and other Medicare coverage. This year the Centers for Medicare & Medicaid Services (CMS) is urging all beneficiaries to review their coverage because of the changes made by drug plans to their premiums and benefit packages. CMS encourages beneficiaries to use its Medicare Plan Finder on the Medicare website, www.medicare.gov, to help find the most comprehensive and economical coverage for them.

According to the Kaiser Family Foundation, the admonition by CMS to review current coverage is worth heeding. More than nine in ten beneficiaries enrolled in prescription drug plans will see their premiums increase in 2009. About half of prescription drug plan enrollees who have not changed plans will have experienced a fifty percent increase in their drug plan premium since Part D began in 2006.[1] Kaiser also points out that, despite the change in plan costs each year, the majority of beneficiaries remain in the same plan rather than change during the AEP.

Yet some beneficiaries who use the Medicare Plan Finder to choose the lowest cost plan, as CMS suggests, may be in for a surprise when they fill their prescriptions in January. The initial screen from the Plan Finder does not provide detailed information about new pricing schemes that increase the cost of certain brand name drugs substantially. As a result, unwary beneficiaries may find themselves paying significantly more for their brand name prescriptions than they were led to believe by the Plan Finder. What appears to be the lowest cost plan may, in fact, be more costly than other plans that do not use the same pricing mechanism.

This Weekly Alert will discuss the new pricing mechanism and the difficulties with the Medicare Plan Finder.

Most prescription drug plans use a multi-tiered cost-sharing structure to encourage use of certain drugs on their formularies. Generic drugs are generally placed on the lowest tier with the lowest cost-sharing amount to encourage their use. Brand name drugs are placed on higher tiers with higher cost sharing amounts.

In July 2008 CMS issued new guidance that allows drug plans to use "reference-based pricing" for certain formulary drugs, generally brand name drugs with a generic equivalent.[2] Under a reference-based pricing system, the beneficiary pays the tiered cost sharing amount plus an additional amount that supplements the cost-sharing. The additional amount, sometimes referred to as a "product selection penalty," is calculated as the difference between the full price of the brand name drug and the full price of its generic equivalent. Advocates report that at least three national Part D plan sponsors, HealthNet, SilverScript, and Sterling, use reference based pricing in their formularies.

The penalty can literally add hundreds of dollars to the co-pay stated in the Plan Finder. The following examples are based on information on the Plan Finder for plans in Connecticut:

Note that two of the plans, HealthNet Orange and Sterling Rx, also require prior authorization before the plan will pay for Arava.

The Plan Finder does not make information about reference-based pricing readily available. The cost of the penalty is not even considered in the Plan Finder's designation of lowest cost plans, and the initial screen does not mention the possibility of a penalty. Beneficiaries and their helpers who do not go beyond the initial screen, therefore, will not know that the cost of their prescription is more than the Plan Finder indicates. They may choose what appears to be the lowest cost plan without knowing that a penalty may be added to the co-payment for their drugs.[4]

Beneficiaries who dig deeper on the Plan Finder still will not get sufficient information to assess the true cost of their drugs. Those who go to the Plan Compare screen may discover that their drug bears a footnote, "Footnote 8". Footnote 8 says, "This drug may be subject to supplemental cost-sharing in addition to the price displayed. Please contact the plan for details." This cryptic language provides clues but does not effectively convey the magnitude in the cost differential.

Plan sponsors that use reference-based pricing must ensure that plan enrollees are made aware of the drugs which are subject to the additional cost-sharing.[5] Yet even beneficiaries who contact their plans still may not know how much their drug will cost. Plan web sites do not include the actual charge for the drug after the penalty is attached. Because drug costs vary by pharmacy, the plans claim that the actual charge cannot be ascertained until the claim is processed. Advocates who have contacted plans to learn about the penalty report that some customer service representatives are unaware that a penalty exists or cannot describe how it works.

Medicare beneficiaries, their advocates and other helpers cannot be assured that the information provided to them on the Plan Finder is accurate. They need to drill as deeply as possible into the Plan Finder tool to ascertain whether reference-based pricing and other utilization management tools apply to their prescriptions. They need to check the plan web site and contact the plan customer service line to ascertain how the pricing might work. Even then, they cannot be assured that the plan they believe to be the lowest cost drug plan for them will, in fact, provide the most coverage at the lowest cost.

Advocates question the legality of the reference-based pricing system. At a minimum, the Plan Finder tool, plan web sites, and plan materials fail to provide beneficiaries with sufficient information to help them make an informed and accurate choice about their prescription drug coverage.

Congressman Pete Stark (D. California), chairman of the Health Subcommittee of the House Committee on Ways & Means, sent Acting CMS Administrator Kerry Weems a letter detailing problems with the Medicare Plan Finder, including the issue of reference-based pricing. Whether CMS will take any action in response to the letter or in response to complaints by advocates remains to be seen.

[1] Medicare Part D Plan Spotlight: Premiums; http://www.kff.org/medicare/upload/7835.pdf.

[2] See PDP Manual, Ch. 5 at 20.4 (revised July 3, 2008), available at http://www.cms.hhs.gov/manuals/downloads/Pub100_18.pdf).

[3] Plans have informed advocates that beneficiaries will not be charged more than the full cost of the prescription for drugs that are subject to the penalty.

[4] They also will not know that their prescriptions may be subject to prior authorization or other utilization management requirements.

[5] Medicare Prescription Drug Manual, Ibid.