Fact Sheets

MEDICARE DRUG COVERAGE CONTINUES TO PROVIDE SIGNIFICANT DISCOUNTS AND SAVINGS IN 2007

Centers for Medicare & Medicaid Services (CMS)

October 13, 2006

Savings of Over 85 Percent Possible for Beneficiaries

Through Medicare Prescription Drug Plans in 2007

EXECUTIVE SUMMARY

This report presents updated findings for the drug plans available in 2007, as part of an ongoing analysis by the Centers for Medicare & Medicaid Services (CMS) that has tracked prescription drug savings in the Medicare prescription drug benefit since it began. The first report was released in March 2006, and a follow-up report was issued in September 2006. This report, which includes the first set of CMS analyses based on plans in 2007, demonstrates that beneficiaries with common chronic conditions enrolled in Medicare prescription drug plans (PDPs) will see significant and, in many cases, increased savings in their prescription drug costs for the coming year.

As previous CMS reports have shown, savings in 2006 were by and large extremely stable – in many cases, savings increased over the course of the year – with Part D prices increasing less than the average wholesale prices (AWPs) for these same products that affect the prescription drug market as a whole. As detailed below, 2007 plans and benefit features will continue to provide substantial savings for beneficiaries, with many plans offering larger price discounts and greater overall savings off of retail prices. Among the illustrative beneficiaries in this study, the median increase in annual costs in 2007 is less than 2 percent relative to 2006. In many instances, beneficiaries’ annual costs will actually be lower in 2007. In addition, large savings will be available through a broader range of plans, especially for beneficiaries who switch to therapeutically identical generic versions of drugs and therapeutically similar “preferred” brand-name drugs.

Continued access to these savings reflects plans’ ongoing effective price negotiation on beneficiaries’ behalf, with consumer choices further enhanced by more plans offering the benefit features that proved most attractive to beneficiaries in 2006 and improved decision-making tools such as the Medicare Prescription Drug Plan Finder available on www.medicare.gov and through 1-800-MEDICARE.

The savings under Part D are driven by both the price discounts negotiated by plans plus the cost-sharing assistance from the benefits they offer. All are reflected in the savings available when the entire plan benefit structure­­—including beneficiary premiums and cost-sharing—is taken into account.

Specifically, compared to what people with Medicare would pay without prescription drug coverage, the illustrative beneficiaries included in this study will save an average 53 percent off of the costs of their current prescription drugs in 2007, up to a maximum of 68 percent through the lowest-cost plans available. Even those choosing from a range of lower-cost plans can save up to 65 percent annually in 2007, up from 52 percent at the end of 2006, demonstrating that beneficiaries will see savings through a broader range of plans in 2007 due in part to continued competition for enrollees.

While beneficiaries have always stood to benefit from the additional savings available through generic medications, opportunities to save will be even greater in 2007 due to the increased availability of lower-cost substitutes that provide exactly the same clinical benefits as their brand-name counterparts. The illustrative beneficiaries in this analysis could see savings of up to 87 percent in 2007 through their lowest-cost plan if they switched to generics—up from 76 percent in 2006.

Even larger savings are possible for beneficiaries in plans with more modest savings for particular combinations of drugs if they are willing to switch to generic drugs and other “preferred” brand-name drugs that work in very similar ways. For instance, those in the median or mid-priced plan available could increase their savings from 44 percent to 76 percent by switching to generics and other therapeutically similar medications recommended by their plan and approved by their physician.

Along with the available savings highlighted above, the range of plans offered under Part D reflects the different preferences of beneficiaries when it comes to their health-care coverage. In 2006, beneficiaries chose coverage options that differed in terms of premiums, deductibles, copayments or coinsurance, coverage in the gap, and the specifics of covered drugs. This analysis shows that Medicare beneficiaries with common health problems can choose from among a range of plans in 2007 with features that offer significant savings and protection from prescription drug cost increases in the marketplace at large.

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, and CMS has been tracking the savings available to illustrative beneficiaries taking them since implementation of Part D.

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 and is designed to help Medicare beneficiaries and their families select a plan that best fits their individual needs. This website is now even more user-friendly as it includes a number of enhanced features, such as a Monthly Cost Estimator, which displays personalized information on expected monthly drug spending for each plan. By using the Plan Finder, users can focus on the plans with the features most important to them personally, such as premiums, formularies, or the availability of coverage in the gap.

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, including more generous drug coverage for a low or zero premium.

The illustrative beneficiaries included in this analysis do not qualify for additional assistance on the basis of having a low income. Those qualifying for the drug benefit’s low-income subsidies are expected to see average savings of 95 percent on their drug costs, representing significant help with prescription drug costs for those with especially limited means.

RESULTS

The illustrative beneficiaries in this study selecting the stand-alone drug plan with the lowest total annual cost in their area (including premiums, deductibles, and all cost-sharing over the course of a year) may save an average of 53 percent – and sometimes much more – off of what they would pay without any drug coverage in 2007, with maximum savings of up to 68 percent (see Attachment B).

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 65 percent, up substantially from 52 percent in 2006. Finally, even those selecting the mid-priced (or, median) plan could realize savings of up to 44 percent.

While these percentage savings can amount to several thousand dollars or more per year, 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 87 percent among lowest-cost plans—with similarly large savings available through the 10^th-ranked and mid-priced plans (both 79 percent). In sum, beneficiaries willing to use therapeutically identical generic drugs can get very large savings on a broad range of plans in their area.

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 plan ranked 10^th in cost increase to 79 percent (up from 65 percent). Even plans that originally fell in the middle of the price range may offer beneficiaries very large maximum savings of 76 percent (up from 44 percent) if they are willing to switch to both generic and therapeutic substitutes. This is because some plans differ in terms of which specific brand-name drugs they cover within a class that has multiple drugs that treat the same condition. When they do not offer a large discount on a particular drug in the class, other drugs that work in a very similar way 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 Lincoln, Nebraska, would have saved 29 percent off of the costs of his or her original drug regimen, savings under this same plan would increase to 73 percent if generic and therapeutic substitutions were made (see Attachment B, Profile 2).

In 2006, millions of beneficiaries saved more by switching to lower-cost generic and preferred brand-name drugs, contributing to the much lower-than-expected cost of the drug benefit.

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 up to 66 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, additional coverage in the “coverage gap,” 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 $7,458 a year without drug coverage can save $3,431 (or, 46 percent) on his or her annual drug bills by enrolling in the lowest-cost plan in the area (see Attachment B, Profile 4).

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

• A beneficiary living in Denver, Colorado, with hypertension and chronic pain who would have spent $1,937 a year on medications without drug coverage can enroll in a PDP that would save 68 percent in annual drug costs—for a total savings of $1,317 per year. If this same individual were to choose the 10^th-ranked or mid-priced plan available, he or she would still save 54 percent ($1,046) or 44 percent ($852), respectively, on drug costs over the course of the year (see Attachment B, Profile 14).

As noted above, in 2006, Part D prices for the drugs analyzed here increased more slowly than the average wholesale prices (AWPs) that affect other consumers of prescription drugs. This has translated into substantial and reliable out-of-pocket savings for beneficiaries in terms of the maximum savings available since the program began.

The findings in this report show that beneficiaries can continue to get substantial and, in many cases, increasing savings through the Medicare prescription drug benefit. The large savings for beneficiaries with high expected costs also highlight the protection provided by Medicare PDPs 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 early in 2005, prior to implementation of Part D, 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.

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]

Link to attachments:

www.cms.hhs.gov/PrescriptionDrugCovGenIn/Downloads/PlanFinderAnalysis.pdf

[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 2007 prices posted on the Medicare Prescription Drug Plan Finder on October 13, 2006. Comparisons to 2006 savings are based on the results released in the September 2006 update of this report.

[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 6/2006.