Fact Sheets

LARGE NEGOTIATED PRICE DISCOUNTS CONTINUE IN MEDICARE PART D -- THE REPORT

Savings of Over 70 Percent Possible for Beneficiaries

Through Medicare Prescription Drug Plans

EXECUTIVE SUMMARY

This report presents updated findings from an ongoing analysis by the Centers for Medicare & Medicaid Services (CMS), which was originally released on March 2, 2006. This updated analysis demonstrates that Medicare beneficiaries with common chronic conditions enrolled in Medicare prescription drug plans (PDPs) may be seeing even larger savings off of their prescription drug costs than were initially presented in the March report, with average savings for these illustrative beneficiaries increasing from 57 to 59 percent and maximum savings through a range of lower-cost plans up from 49 to 52 percent. In addition to highlighting the stability of available savings, this analysis finds that Part D prices have increased less than have the average wholesale prices (AWPs) for these same products, which affect the prescription drug market as a whole.

The savings under Part D are driven by the price discounts negotiated by plans, which are as large as and, in many cases, substantially better than “third party” negotiated prices (i.e., prices obtained by insurance companies and pharmacy benefit managers (PBMs)). Mail-order prices for Medicare plans are also lower than those available from popular Internet pharmacies.

Savings are even larger when the plan benefit structure­­—including beneficiary copayments or coinsurance for medications in the initial coverage period—is taken into account. Specifically, compared to what people with Medicare would pay without prescription drug coverage, choosing the lowest-cost plan available in their area would save the illustrative beneficiaries in this analysis an average of 59 percent off of their drug costs—with maximum savings of up to 72 percent. Even those choosing from the range of lower-cost plans can save up to 52 percent annually—and the mid-priced (or, “median”) plan can provide savings of up to 43 percent off of what they would pay without drug coverage.

Savings increase substantially for beneficiaries who switch to lower-cost generic medications, which have exactly the same active ingredients as their brand-name counterparts. The illustrative beneficiaries in this analysis would see savings of up to 74 percent for a broad range of lower-cost plans if they switched to generics. Even larger savings are possible for beneficiaries who also switch to lower-cost “therapeutically equivalent” drugs—drugs in the same class that have very similar effects—with savings for these illustrative beneficiaries increasing to 82 percent for the lowest-cost plan and up to 75 percent for a range of lowest-cost plans.

CMS has found that these savings have been stable and reliable since the program began on January 1, 2006, with the prices paid by Part D enrollees going up less than the AWPs that affect many public and private drug purchasers. While plans’ prices for the drugs included in this analysis have increased by an average of 3.6 percent over the past six months, the AWPs for these drugs have increased by an average of 4.1 percent over this same period. Coupled with large discounts, this price stability translates into substantial and reliable savings for beneficiaries through Medicare drug coverage.

Beneficiaries have different preferences when it comes to their health-care coverage. They are choosing coverage options that differ in terms of premiums, deductibles, copayments or coinsurance, coverage in the gap, and the specifics of covered drugs. This analysis shows that most Medicare beneficiaries with common health problems can find a range of plans with features that will provide them with significant savings and protect them from cost increases.

BACKGROUND

This analysis was based on information provided to CMS by participating prescription drug plans (PDPs) for the Medicare Prescription Drug Plan Finder tool at www.medicare.gov. [1] The same personalized information on the features and costs of the plan offerings is available by calling 1-800-MEDICARE.

CMS calculated the savings on a range of drug “profiles,” comprised of the medications that are most often used by Medicare beneficiaries. These include drugs and combinations of drugs for conditions such as high blood pressure, high cholesterol, coronary artery disease, heart failure, diabetes, osteoporosis, thyroid problems, and chronic lung diseases such as asthma, among others. The drugs were selected from about 100 brand-name and generic medications, including many of the drugs most commonly taken by Medicare beneficiaries. The profiles were created in early 2005.

The information on the costs and coverage available through the Medicare Prescription Drug Plan Finder is an unprecedented step toward transparency in prescription drug costs. This kind of pharmacy- and drug-specific cost and coverage information has never been available before through health insurance plans. This personalized information is designed to help Medicare beneficiaries and their families select a plan that best fits their individual needs. At the same time, the program promotes competition to reduce prices and improve benefits, as prescription drug plans compare their performance to their competitors. CMS continues to monitor the extent of actual savings, and is starting to conduct more in-depth analyses of the prescription drug prices available to beneficiaries enrolled in Medicare prescription drug plans, or PDPs.

This analysis focuses only on stand-alone PDPs. Substantially larger savings on overall health care costs (including drug coverage) are generally possible through enrollment in a Medicare Advantage plan because these plans frequently offer additional health benefits at a lower cost, such as more generous drug coverage for a low or zero premium. In addition, Medicare beneficiaries with low incomes who qualify for additional assistance are expected to see average savings of 95 percent on their drug costs. These savings represent significant help with prescription drug costs for those with especially limited means.

RESULTS

Plans Negotiate Substantial Discounts on Prescription Drug Prices

Since the drug benefit was implemented on January 1, 2006, the negotiated discounts for Medicare prescription drug plans have generally been comparable to or better than the discounts negotiated by large “third-party” insurance plans on behalf of non-Medicare populations. These price discounts are available on a broad range of prescription drugs prescribed for common chronic conditions, not just on one or two specific drugs in each class.

Medicare prescription drug plans also offer additional price discounts through mail-order and beneficiaries may select a plan that offers this option. The data show that mail-order prices through the range of lower-priced Medicare prescription drug plans are consistently lower than those available from well-known and reputable mail-order sources such as Drugstore.com and Costco.com. Those with chronic conditions who select the lowest-cost plan in their area can see savings through their plan’s mail-order option that average 22 percent off of these other mail-order sources, but that can be as high as 33 percent off of Costco.com’s mail-order prices and 64 percent off of Drugstore.com’s.

Since the benefit began, CMS has also tracked Part D prices for the top drugs included in this analysis and compared them to real changes in the average wholesale prices (AWPs) that affect essentially all prescription drug purchases in the United States. This comparison finds that Part D prices have actually increased less than has the AWP for these selected prescription drugs over the past six months. While plans’ prices for the drugs included in this analysis have increased by an average of 3.6 percent over the past six months, AWPs have increased by an average of 4.1 percent over this same period. Thus, not only are Part D enrollees seeing substantial discounts on drug prices, they are also somewhat insulated from the price increases that are taking place in the prescription drug market at large.

Medicare Prescription Drug Plans’ Benefit Structure Offers Significant Savings

The illustrative beneficiaries in this study selecting the stand-alone drug plan with the lowest total annual cost in their area may save an average of almost 60 percent – and sometimes much more - off of what they would pay without any drug coverage. Those selecting drug plans offering the lowest total annual costs (including premiums, deductibles, and all cost-sharing over the course of a year) can find annual savings of up to 72 percent. If they enrolled in the plan ranked 10^th in terms of cost, the beneficiaries included in this study could see savings of up to 52 percent. Finally, even those selecting the mid-priced (or, “median”) plan could realize savings of up to 43 percent. These percentage savings can amount to several thousand dollars or more per year. For example:

• A beneficiary living in Appleton , Wisconsin, with hypertension, breathing difficulties, and acid reflux, among other problems, who had spent $6,524 a year on medications without drug coverage can enroll in a PDP that would save 56 percent in annual drug costs—for a total savings of $3,653 per year. If this same individual were to choose the 10^th-ranked or mid-priced plan available to them, he or she would still save 38 percent ($2,479) or 32 percent ($2,088), respectively, on drug costs over the course of the year. These savings are each 3 percentage points higher than those estimated in the March report.

Beneficiaries willing to switch to lower-cost medications such as generic drugs can save even more. Generic medicines are as safe and effective as brand-name drugs: They have exactly the same active ingredients, and they must meet the same quality standards as brand-name drugs. Most people with drug coverage today take generic drugs when they are available, and most prescriptions in the United States are for generic medicines. [2] Were the illustrative beneficiaries in our study to switch to generic prescriptions, the annual savings seen in our study could be as high as 76 percent—with similarly large savings available through the 10^th-ranked and mid-priced plans (74 percent and 65 percent, respectively). In sum, beneficiaries using generic drugs when available can get very large savings from a broad range of plans.

Beneficiaries using both the generic and therapeutic substitutes available on their plans’ formularies can expect to see the greatest savings through a very broad range of drug plans. In particular, maximum savings under the originally lowest-priced plans increase to 82 percent overall and are very similar – 75 percent – for even the 10^th-ranked plan. Even plans that originally fell in the middle of the price range may offer beneficiaries very large savings if they are willing to switch to both generic and therapeutic substitutes. This is because some plans differ in terms of which specific drugs they cover within a class of drugs. When they do not offer a large discount on a particular drug in the class, other similar drugs in that class are often available for a lower price. For example:

• While the mid-priced plan available to a beneficiary with hypertension, high cholesterol, and acid reflux, among other health problems in Virginia Beach, Virginia, would have saved 27 percent off of the costs of his or her original drug regimen, savings under this same plan would increase to 72 percent if generic and therapeutic substitutions were made.

Beneficiaries can generally achieve substantial savings by choosing a plan with a low premium as well. Were the beneficiaries included in this study to select the plan with the lowest premium available in their area, they would save 33 percent to 72 percent off of what they would pay on average without coverage.

These findings demonstrate that beneficiaries can focus on selecting a plan based on the attributes that matter the most to them personally, such as low monthly costs or coverage and pharmacy access, and still realize substantial savings.

The results of this analysis also indicate that savings are available to beneficiaries with both high and low drug costs. Beneficiaries in the study who have relatively high spending – putting them in the “coverage gap” for the standard benefit -- can generally achieve very substantial savings due to price discounts and coverage, as well as the availability of options that fill in the coverage gap. This can mean thousands of dollars in cost savings. For example:

• A beneficiary living in Bismarck, North Dakota, with hypertension, osteoporosis, and chronic pain, and drug spending as high as $7,193 a year without drug coverage can save $5,179 (or, 72 percent) on his or her annual drug bills by enrolling in the lowest-cost plan in the area.

At the same time, even beneficiaries with relatively low prescription drug spending can achieve significant savings by choosing a plan with low premiums and/or no deductibles. To take another example:

• A beneficiary living in Mercer Island, Washington, with angina, depression, hypertension, and a history of heart failure who spent $1,344 a year on medications before enrolling in a PDP can save $847 (or 63 percent) annually by enrolling in the lowest-cost plan in the area. These savings are 3 percentage points higher than those estimated in the March report.

The significant savings detailed above have been stable and reliable since the Medicare drug benefit was implemented on January 1, 2006, with Part D prices increasing more slowly than the average wholesale prices (AWPs) that affect other consumers of prescription drugs and the maximum savings available to our illustrative beneficiaries varying no more than 1 percentage point over the past six months.

These findings should reassure beneficiaries that they can count on meaningful savings upon enrollment in the plan of their choice. These savings also highlight the security that Medicare PDPs provide beneficiaries with respect to the reliability of coverage in the event that their prescription drug needs increase in the future.

DESCRIPTION OF STUDY METHODS

For the purpose of this analysis, CMS created 16 drug profiles of illustrative beneficiaries with a number of common chronic conditions, each taking a different array of commonly used medications. These profiles were developed by pharmacists and other medical professional staff at CMS, and were intended to be representative of a range of Medicare beneficiaries.

To analyze plan savings, the 16 profiles were run in 32 ZIP codes (each profile in 2 ZIP codes, in effect creating 32 illustrative beneficiaries) in order to capture the experiences of beneficiaries in various geographic areas around the country. The areas chosen may not be representative of all geographic areas.

For the negotiated price analysis, the 16 profiles were each run in one ZIP code to generate the prices negotiated by each of the available plans that covers all of the drugs in a given profile on its formulary. For each illustrative beneficiary, CMS selected the following specific plans for the cost comparisons: (1) the plan with the lowest total annual cost, (2) the plan with the median annual cost (i.e., the “mid-priced” plan), and (3) the plan with the lowest annual premium. These prices were then compared to both cash prices and 3rd-party prices for the given sets of drugs.

For the mail-order analysis, the profiles for which mail-order prices were available for all drugs through all sources (14 out of 16) were each run in one ZIP code to compare mail-order prices for plans to those at Costco.com and Drugstore.com. The plan with the lowest total annual cost and the plan with the median annual cost (i.e., the “mid-priced” plan) were selected for purposes of comparison.

The analysis of AWP changes was based on data from industry sources for National Drug Codes (NDCs). The data for this analysis were pulled on AWPs as of December 12, 2005, and May 29, 2006. These prices reflect the published AWPs in effect at the time that plans prepared their file submissions for data posted to Medicare.gov’s PlanFinder for the weeks of December 19, 2005, and June 5, 2006. For each month, an unweighted average was computed of the AWPs available for each of the profile products.

Information from the Medicare Prescription Drug Plan Finder, available on www.medicare.gov, was used to determine the amount each of the 32 illustrative beneficiaries would spend annually on their prescription drugs if they enrolled in one of the prescription drug plans available in their area. For each illustrative beneficiary, CMS selected the following specific plans for the cost comparisons: (1) the plan with the lowest total annual cost, (2) the plan with the 10th lowest annual cost, (3) the plan with the median annual cost (i.e., the “mid-priced” plan), and (4) the plan with the lowest annual premium. CMS then compared these plans’ costs to the national average cash prices that beneficiaries would pay for the same drugs if they were without drug coverage. [3]

[1]The Medicare Prescription Drug Plan Finder is an internet-based tool designed to help people compare Medicare drug plans in specific geographic areas and select the plan that best meets their needs. It offers pricing transparency to consumers by providing formulary, premium, deductible, and cost-sharing information. The same personalized information is available by calling 1-800-MEDICARE. For purposes of this study, we accessed the Medicare Prescription Drug Plan Finder during the week of June 5, 2006.

[2] Generic Pharmaceutical Association, 2006.

[3] Cash prices derived from Vector Oneä: National (VONA) from Verispan; Variables: Retail Dollars and Extended Units by Cash Method of Payment; quarter ending 3/2006.

Drug Pricing Analysis Information [PDF, 112KB]

# # #