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The Cost Of A Cure: Medicare’s Role In Treating Hepatitis C


June 5th, 2014

Editor’s note: In addition to Tricia Neuman, Jack Hoadley and Juliette Cubanski also coauthored this post.

For a patient with hepatitis C, a potentially deadly disease, the prospect of finding a cure with minimal side effects is a really big deal. Also a big deal is the cost of Sovaldi (sofosbuvir), an oral drug approved by the Food and Drug Administration in December 2013 for the treatment of chronic hepatitis C. Sovaldi has been priced by its manufacturer, Gilead, at $1,000 per pill, or an estimated $84,000 for its entire 12-week regimen. It joins the treatment arsenal with several older drugs generally thought either to be less effective or to have more side effects, and another newly approved drug to be taken in combination with other drugs. More drugs are expected to gain approval within the year.

Sovaldi’s price tag has drawn attention in part because an estimated 3 million Americans have the hepatitis C virus and could be considered candidates for new drugs. Patients will clearly benefit from a long-awaited cure, and public and private payers could potentially see a reduction in health care spending over the long term if Sovaldi successfully cures this disease and fewer patients require high-cost liver transplants. But private insurers and public programs will face significant budgetary pressures if a large number of patients receive this treatment at current prices.

To date, attention has focused on cost implications for private health plans, Medicaid, and the Department of Veterans Affairs (VA). For example, UnitedHealth reported that the cost of Sovaldi was “multiple times” its expectations. State Medicaid officials and Medicaid plans have warned that the cost of the new treatments will pose significant fiscal challenges to state budgets and plan payment rates, even though Medicaid receives a 23.1 percent rebate (discount) for all brand drug purchases. The VA has decided to cover the drug and secured from Gilead a discount of 44 percent, one that applies to certain other federal purchasers, but is targeting treatment to the sickest patients while waiting for less expensive drugs to become available.

Less attention has been paid to the cost implications for Medicare, where coverage of Sovaldi will fall under Part D, the program’s outpatient prescription drug benefit administered by private plans. Given the drug’s effectiveness, most if not all of Part D plans will likely cover Sovaldi. The anticipated impact on costs to Medicare will be revealed to CMS later this month, when plans submit premium bids for 2015. Plans will increase their bids to cover the expected costs of new treatments, which will raise costs for both the federal government and Part D enrollees who pay premiums. CMS will release the average Part D premium for 2015 in August.

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Assessing A CMS Proposal To Improve Competition Among Medicare Part D Drug Plans


March 4th, 2014

In one provision of its January Notice of Proposed Rulemaking (NPRM), for Medicare Part D and Medicare Advantage, CMS proposed that it will accept no more than two stand-alone prescription drug plan (PDP) bids from each Part D plan sponsor, starting in coverage year 2016. The agency stated two reasons for this proposal. First, it would reduce beneficiary confusion in the Part D market by both lowering the number of choices that they face and ensuring that differences between competing options are clear and meaningful to them. Second, it would address the impact of one source of favorable selection that leads to higher costs for the government and the taxpayer. This note looks at evidence from Part D to help understand the context for this proposal.

Reducing the Number of Plan Offerings

The competitive market design of Part D requires that plan enrollees regularly evaluate their options. Our recent study shows that most Part D enrollees have not changed their plan selection from one year to the next, and seven of ten enrollees in stand-alone PDPs did not switch plans over a five-year period. Both the current CMS guidance and the new CMS proposal stem from the principle that available PDPs offered by a given plan sponsor should have “meaningful differences” to help ensure that beneficiaries are presented with a clear and understandable array of choices. The Part D program in 2014 offers the average beneficiary a choice of about 35 PDPs and 20 Medicare Advantage drug plans.

Currently, a plan sponsor may offer up to one plan with the basic Part D benefit as described in statute (or actuarially equivalent to the basic benefit) and two enhanced plans. If two enhanced plans are offered, a sponsor may enhance the benefit through lowering the deductible, cost sharing, or both. The second plan must add substantial coverage in the coverage gap (“doughnut hole”). Current CMS guidance further encourages plan sponsors to eliminate plans attracting few enrollees. Nevertheless, 330 of the 1,169 PDPs in 2014 have fewer than 1,000 enrollees (239 of them with fewer than 500 enrollees) – the level at which CMS encourages sponsors to consolidate smaller plans with another of the sponsor’s plan options.

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The Medicare Part D Drug Rebate Proposal: Rebutting An Unpersuasive Critique


December 28th, 2012

A proposal to require manufacturers to pay a minimum rebate on drugs covered under Medicare Part D for those beneficiaries who receive the program’s Low-Income Subsidy (LIS) has received considerable attention during the current debate over the federal budget. Through mandating discounts in the form of rebates, this proposal would ensure lower drug prices than currently negotiated by private Part D drug plans.

A study by the HHS Inspector General in August 2011 found that rebates negotiated by private plans average about one-third the size of those received in the Medicaid program, where most LIS beneficiaries received drug coverage prior to the implementation of Part D. The proposal is scored by the Congressional Budget Office as achieving savings of $137 billion over 10 years (2013-2022) or about $15 billion in the first full year of implementation.

The rebate approach has been part of Medicaid drug pricing for over 20 years and includes three components. The rebate is set as the greater of (1) a minimum rebate, currently set at 23.1 percent of the average manufacturer price (AMP) for most brand-name drugs and (2) the difference between the AMP and the “best price,” defined as the lowest manufacturer price paid for a prescription drug by any private purchaser. In addition, if a brand drug’s AMP rises faster than inflation, the minimum rebate is increased based on the change in AMP compared to the consumer price index.

It has come to our attention that a number of interested parties have signed a letter, sponsored by the Council on Affordable Health Coverage, expressing concerns about this budget proposal. The analysis upon which the concerns are based is that by Douglas Holtz-Eakin and colleagues. They offer two arguments against this policy, which they claim would increase Part D premiums by 20 to 40 percent and shift costs to employers, Medicaid, and non-LIS Medicare beneficiaries. They are:

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