MEDICARE DRUG COVERAGE PROVIDES SIGNIFICANT PRICE DISCOUNTS AND SAVINGS: (FULL REPORT)

Centers for Medicare & Medicaid Services (CMS)

March 2, 2006- Updated Report

Savings of Almost 60 Percent or More for Beneficiaries Possible

Through Medicare Prescription Drug Plans

EXECUTIVE SUMMARY

An ongoing analysis by the Centers for Medicare & Medicaid Services (CMS) shows that Medicare beneficiaries with common chronic conditions who enroll in Medicare prescription drug plans (PDPs) can see substantial savings off of the costs of their prescription drugs compared to what they would pay with no drug coverage.  The savings are a result of 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)).  In addition, taking rebates into account for both Medicaid and Medicare, our study found that Medicare drug plans are getting good prices, often as good as or better than Medicaid prices.  Mail-order prices for the 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—are taken into account.  Beneficiaries can see even larger savings by using generic medications (which are as safe and effective as brand-name medications) or other brand-name drugs that are therapeutically equivalent to their original medications.  The additional savings are due not only to the coverage itself, but also to rebates, which are passed along to beneficiaries in the form of lower premiums and copays.

Specifically, compared to what people with Medicare would pay without prescription drug coverage, those choosing the lowest-cost plan available in their area can save on average 57 percent off of their drug costs—with a maximum savings of up to 71 percent.   Even those choosing from the range of lower-cost plans can save 49 percent annually—and the mid-priced (or, “median”) plan can provide savings of up to 42 percent off of the costs they would pay without this coverage.   Savings increase substantially for beneficiaries who switch to lower-cost generic medications, which have exactly the same active ingredients as the brand-name medicines, with savings of up to 70 percent for a broad range of lower-cost plans.  Even larger savings are possible on a very broad range of drug plans for beneficiaries who also switch to lower-cost “therapeutically equivalent” drugs – drugs in the same drug class that have very similar effects. Those who switch to less expensive brand-name therapeutic equivalents can save even more—with savings increasing to 83 percent for the lowest-cost plan and up to 79 percent for the range of lowest-cost plans.  CMS has found that these savings have been stable and reliable since the program began on January 1, 2006.  

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 they want that will provide them with large savings.   

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 (see Attachment A).  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 results were drawn 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, it promotes competition to reduce prices and improve benefits, as prescription drug plans compare their performance to their competitors. CMS will continue monitoring the extent of actual savings, and will also be conducting 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 benefits at a lower cost, such as more generous drug coverage for a low or zero premium.   Finally, Medicare beneficiaries with low incomes who qualify for additional assistance will see average savings of 95 percent on their drug costs.  Clearly, these savings translate into significant help 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 (see Attachment B).  Price discounts are available on a broad range of prescription drugs, not just on one or two specific drugs in each class.  Because beneficiaries have a choice of drug plans, they can select the plan that best meets their individual needs and allows them to receive better discounts at their local pharmacies on the drugs they currently take. 

Taking rebates into account for both Medicaid and Medicare, our study found that Medicare drug plans are getting prices that are often as good as or better than Medicaid prices (see Attachment C).  For many of the States we examined, the prices for the lowest-priced PDP were lower than Medicaid prices in at least 13 of the 16 beneficiary profiles.  In 71 percent of the States, the PDP with the lowest prices had net prices lower than Medicaid’s in most of the drug profiles examined.  Even among the mid-priced PDPs, many States had PDPs with net prices lower than Medicaid's for some of the drug profiles examined.  Were the prices of lower-cost generic or brand-name therapeutically equivalent medications substituted for the drugs in the beneficiary profiles, we would expect to see even greater savings under Medicare PDPs.

Medicare prescription drug plans also offer additional price discounts through mail-order and beneficiaries may select a plan that offers this option (see Attachment D).  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.   Even those with chronic conditions who select the mid-priced plan in their area can see savings through their plan’s mail-order option that average almost 10 percent, but that can be as high as 35 percent compared to Costco.com’s mail-order prices and 49 percent compared to Drugstore.com’s.

Medicare Prescription Drug Plans’ Benefit Structure Offers Significant Savings

Beneficiaries 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 the costs they are paying without any drug coverage (see Attachment E).     Beneficiaries in our study 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 71 percent.  If they enrolled in the plan ranked 10^th in terms of cost, the beneficiaries included in this study could see substantial savings of up to 49 percent.  Finally, even those selecting the mid-priced (or, “median”) plan could realize savings of up to 42 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 $6,187 a year on medications without drug coverage can enroll in a PDP that would save 53 percent in annual drug costs—for a total savings of $3,307 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 35 percent ($2,165) or 29 percent ($1,794), respectively, on drug costs over the course of the year.  (See Attachment E, Profile 7.)

Beneficiaries willing to switch to lower-cost medications such as generic drugs can save even more.  Generic medicines have the same safety and effects 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]  For beneficiaries who take generic prescriptions, annual savings through PDPs can be as high as 72 percent—with similarly large savings available through the 10^th-ranked and mid-priced plans (70 percent and 59 percent, respectively).   In sum, beneficiaries using generic drugs when available can get large savings from a broad range of plans.

Beneficiaries using both 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 83 percent overall and are very similar – 79 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 that work in very similar ways.   When they do not offer a large discount on a particular drug in the class, they generally offer large discounts on other similar drugs in the class.    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 28 percent off of the costs of his or her original drug regimen, savings under this same plan would triple to 84 percent if generic and therapeutic substitutions were made.  (See Attachment E, Profile 18.)

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

Beneficiaries can generally achieve substantial savings by choosing a plan with a low premium.   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 68 percent off of what they would pay on average without coverage. 

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 $6,957 a year without drug coverage can save $4,946 (or, 71 percent) on his or her annual drug bills by enrolling in the lowest-cost plan in the area.  (See Attachment E, Profile 4.)

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 $1,359 a year on medications before enrolling in a PDP can save $817 (or 60 percent) annually by enrolling in the lowest-cost plan in the area.  (See Attachment E, Profile 10.)

The significant savings detailed above have been stable and reliable since the Medicare drug benefit was implemented on January 1, 2006 (see Attachment F).  As beneficiaries who have not yet enrolled in a plan continue to compare their options, they should be reassured 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 drug bills 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.   The illustrative beneficiaries used in the analysis 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.

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 tenth 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]

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.  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.

For the Medicaid price analysis, CMS compared prices net of rebates for all 16 profiles in 35 different ZIP codes, representing 35 states and covering all 34 PDP regions.  CMS estimated prices net of rebates by applying state-specific average rebate percentages to estimates of the state-specific Medicaid payment amounts.  Federal Upper Limit (FUL) amounts were used for generic drug prices. Similarly, for those PDPs that cover all the drugs in a profile on its formulary, plan-specific estimated rebate percentages (as included in the 2006 plan bids) were applied to plan-specific payment amounts.