Fact Sheets

LARGE NEGOTIATED PRICE DISCOUNTS CONTINUE IN MEDICARE PART D

Ongoing analysis conducted by the Centers for Medicare & Medicaid Services (CMS) shows that the Medicare prescription drug benefit continues to provide large discounts on prescription drugs, with savings from negotiated price discounts that have increased over time.   The analysis shows that, while average wholesale prices (AWP) have changed over the past six months, affecting public and private drug prices throughout the health-care system, Part D prices have increased by less than AWP.  These findings are the result of Medicare prescription drug plans continuing to have substantial negotiated price discounts, which have remained stable over time, as well as providing further protection against price increases in most cases through flat co-pays for drugs that do not change for the year.  Medicare beneficiaries are also widely obtaining additional savings through the use of generic drugs and lower-cost similar drugs available on drug plan formularies. 

Part D Prices Increasing More Slowly Than AWP 

The Centers for Medicare & Medicaid Services has been tracking changes for the top drugs used by Medicare beneficiaries.   These top drugs have been the basis of ongoing analyses of the savings available to illustrative beneficiaries with chronic conditions since the benefit began on January 1.   Because a relatively large share of AWP increases occur at the beginning of the year, this analysis includes all AWP changes between December 12, 2005, and May 29, 2006.   Comparisons with real changes in AWP provide a basis for determining how Medicare drug price changes compare to the general changes in drug prices affecting all public and private drug purchasers.  In this comparison, Part D prices for drugs used to treat common chronic conditions have experienced less of an increase than have AWPs over the past six months.  All available plans’ prices for the drugs included in this analysis have increased by an average 3.6 percent over the past six months, significantly less than the average 4.1 percent increase in AWPs over this same period.  This finding means that the large price discounts in the Medicare drug benefit have been stable and, in many cases, have increased over time, providing substantial and reliable savings for beneficiaries through Medicare drug coverage.

In addition, most beneficiaries have enrolled in plans in which most prescriptions involve flat co-payments that are fixed for the entire year, and thus are not affected by changes in AWP. (Studies of drug plan prices that examine only the negotiated drug prices that beneficiaries pay in the coverage gap do not account for this beneficiary protection; as noted below, less than ten percent of Medicare beneficiaries are expected to have any spending in the coverage gap.) 

Updated Analysis Demonstrates Continuing Large Savings from Price Discounts

With strong competition among Medicare prescription drug plans, beneficiaries are seeing deep discounts on their drugs at their local pharmacies – and the discounts are among the largest available at local retail pharmacies throughout the United States.  Much of these savings are the result of the negotiated discounts that Medicare prescription drug plans are obtaining directly from pharmaceutical manufacturers. 

• In many cases, these discounts are substantially better than “third party” prices negotiated by insurance companies and pharmacy benefit managers (PBMs) for populations other than Medicare beneficiaries.

• These savings are as great as or, in some cases, greater than the projected savings described in CMS’ March report on price discounts in the Medicare drug plans.  Savings for beneficiaries enrolling in the lowest-cost plan (including premiums and drug costs) in their area have increased to an average of almost 60 percent off the cost of their drugs compared to what they would pay without any coverage, with potential savings of as much as 72 percent.

Beneficiaries Have Access to Additional Savings Through Lower-Cost Alternatives

In many cases, beneficiaries are using the unprecedented price information provided by Medicare to get much larger savings by switching to lower-cost drugs that meet their needs.  Many beneficiaries who have switched to generic drugs, obtaining even deeper discounts on their drug costs.  Beneficiaries have also switched to similar brand-name drugs in the same class — “therapeutic alternatives” — that have been shown to provide similar benefits to their current drugs can get still larger savings.  Because large savings are available from a broad range of plans, most Medicare beneficiaries with common health problems can find a range of plans with the features they want that will provide them with large savings.

Many plans have indicated that they are seeing rates of generic use as high as 60 percent, which is substantially higher than generic use among seniors overall in the absence of information and savings from switching to lower-cost alternatives. 

Large Negotiated Price Discounts and Additional Savings Mean Lower Drug Benefit Costs

The stable, large price discounts combined with beneficiary choices of less costly drugs has translated into costs of Medicare prescription drug coverage that are much lower than expected.  The Medicare Trustees’ Report for 2006 projected Medicare Part D costs for the first ten years of the drug benefit that are 20 percent lower than the projected costs in the Trustees’ Report for 2005.   

 

The Vast Majority of Medicare Beneficiaries Are Protected from the Coverage Gap

Today, 90 percent of all Medicare beneficiaries now have drug coverage, 72 percent of whom are not subject to a gap in coverage.   All beneficiaries in the 50 states have access to a plan with some gap coverage, and all beneficiaries with limited incomes have coverage with no gap.  Even among the 29 percent of beneficiaries who chose drug coverage with a gap, most will have drug spending below the level where the gap begins.  PricewaterhouseCoopers recently estimated that only 8 percent of all beneficiaries with drug coverage both lack gap coverage and have drug spending that is sufficiently high to reach the coverage gap.  Coupled with the significant and stable price discounts described above, these enrollment patterns demonstrate that Part D enrollees are seeing very large savings on their annual prescription drug bills.