Pricey Drugs and Discounts Cause Part D Costs to Shift to Medicare

In addition to unveiling details on its proposal to overhaul the Medicare Advantage quality bonus program (RMA 6/18/20, p. 3), the Medicare Payment Advisory Commission (MedPAC) in its June report to Congress recommended major reforms to the Part D program that would shift more drug costs from Medicare to payers and drug manufacturers. Citing the use of high cost drugs pushing beneficiaries into the catastrophic phase of the benefit as leading to greater reinsurance spending, MedPAC once again recommended changing Medicare’s reinsurance subsidy from 80% to 20%. MedPAC would also do away with the coverage gap discount program and require drugmakers to provide discounts of at least 30% in the catastrophic phase.

MedPAC also suggested that under the current Part D structure, how much manufacturers will have to pay in coverage gap discounts may factor into their decisions about price increases or launch prices, and pointed out that coverage gap discounts for relatively low priced drugs make up a larger share of drugmakers’ revenues. “For drugs and biologics with prices near or above the catastrophic threshold, manufacturer discounts in the coverage gap are small compared with their revenue from Part D prescriptions,” the commission wrote. The table below outlines this phenomenon using 2018 data.

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