Health Affairs, 25, no. 5 (2006): 1240-1248 doi: 10.1377/hlthaff.25.5.1240 © 2006 by Project HOPE	New Online   Senate Health Reform Bill   Rewarding Providers   Public Option Policy Brief   Health Reform & Abortion   Delivery System Reform

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Coverage

Access To Cancer Drugs In Medicare Part D: Formulary Placement And Beneficiary Cost Sharing In 2006

Abstract

 
The Medicare Part D benefit expands the universe of cancer drugs and biologics that Medicare may cover. Individual Part D plans have discretion to determine their formularies and cost sharing for drugs within federal guidelines. This paper analyzes differences in coverage and cost sharing for cancer drugs among these plans. We find that many cancer drugs, including brand-name products, are covered by almost all plans, although prior authorization might limit access to some. In addition, many plans charge a relatively low copayment for most cancer drugs. These findings suggest that Part D could greatly expand beneficiaries’ access to cancer treatments.

Medicare coverage history. From 1965 through 2005, Medicare Part B covered outpatient drugs and biological products when administered as part of a physician’s service (typically infusions or injections) and certain oral anticancer drugs and oral anti-emetic drugs.⁵ In 2003 about 75 percent of the Medicare-allowed charges for physician-administered drugs were billed by oncologists.⁶

Medicare Part D, the outpatient drug benefit that began 1 January 2006, expands the universe of Medicare-covered drugs to include cancer medications not administered by physicians and in additional formulations, including oral and self-injectible. Part D coverage is determined by individual private plans, of which there are nearly 3,000 for the 2006 benefit year.⁷ Each prescription drug plan (PDP) offering drug-only coverage and each Medicare Advantage prescription drug (MA-PD) plan offering medical and drug coverage may use a formulary and utilization management (UM) tools such as prior authorization, step therapy, and quantity limits.⁸ As a result, research has shown that plans differ greatly in which drugs they cover and how they apply utilization limits. One recent study examined formulary comprehensiveness, cost sharing, tier structure, and use of UM tools for antidepressants, beta-blockers, tumor necrosis factor inhibitors, hormonal agents used in treating osteoporosis, and proton pump inhibitors.⁹

Formulary protections. The Centers for Medicare and Medicaid Services (CMS) reviews Part D plans’ formularies to ensure that they do not discriminate against beneficiaries with certain health conditions.¹⁰ One of the formulary protections instituted by the CMS in 2006 was a requirement that plans cover "all or substantially all" drugs in certain therapeutic classes, including the anti-neoplastics class, which is composed of anticancer drugs. Specifically, the CMS checked that each plan formulary included at least one version (brand or generic) of all Food and Drug Administration (FDA)–approved active ingredients in the class. The CMS’s stated rationale for the policy was that access to a choice of therapies is more therapeutically important in those classes than in others.¹¹ This policy may reduce the variation in Part D formulary coverage of cancer drugs, but as of this writing, no published study has examined this question.

Variation in cost sharing. Part D plans also may vary considerably in their beneficiary cost-sharing requirements. The standard 2006 Part D benefit includes a $250 deductible; beneficiary coinsurance of 25 percent until total drug spending equals $2,250; 100 percent cost sharing until the beneficiary has spent $3,600 out of pocket (the so-called doughnut hole); and 5 percent beneficiary coinsurance for all additional spending (catastrophic protection). In 2006, many plans are offering a modified version of the standard benefit with changes such as a reduced deductible or flat copayments for drugs instead of coinsurance. Plans also commonly construct several tiers within their formularies, each with a corresponding copayment or coinsurance requirement. Generally, generic drugs appear on lower tiers with lower cost sharing than that required for brand-name drugs.

Subsidies. In 2006, about one-third of Medicare beneficiaries qualify for a low-income subsidy that greatly reduces their cost-sharing burden, regardless of which plan they choose. Under the subsidy, Medicare pays about 96 percent of low-income beneficiaries’ annual drug costs.¹² All Part D plans must charge these beneficiaries the same fixed copayment amounts, determined in law. Among higher-income beneficiaries, however, one plan’s cost sharing for a given drug might not match that of another, and a beneficiary might pay very different amounts for the same drug as he or she accrues additional drug spending during the year.

This paper analyzes Part D plans’ formularies to assess variation in their coverage of and beneficiary cost-sharing requirements for oral and self-injected cancer drugs. We explore the extent and significance of that variation and discuss the implications for beneficiaries’ access to cancer therapies.

Study Methods

Top Study Methods Study Results Policy Implications NOTES

 
We defined a universe of Part D–covered cancer drugs by reviewing listings in a drug compendium in the anti-neoplastics and hormonal agents classes.¹³ The universe includes products that are approved by the FDA to treat cancer and whose route of administration is oral, subcutaneous injection, topical, elixir, or suspension.

We excluded infused chemotherapy drugs, drugs used primarily in cancer supportive care, and oral cancer drugs covered under Medicare Part B.¹⁴ We analyzed Part D plans’ coverage of our universe of drugs using the 1 February 2006 extract of the CMS Prescription Drug Plan Formulary and Pharmacy Network Files. Data on plan characteristics and cost-sharing amounts were merged with variables from the formulary file to include contract identifier, plan identifier, formulary identifier, National Drug Code (NDC) for each drug, formulary tier, and copayment or coinsurance amounts for a thirty-day supply of drugs purchased from preferred pharmacies. We combined multiple NDCs at the drug-name level and coded them as brand-name or generic based on the FDA Orange Book.¹⁵ When NDCs within a drug name appeared on multiple cost-sharing tiers within one plan formulary, we assigned the drug to the lower tier. When some NDCs within a drug name had applications of UM tools and others did not, we counted the drug as being subject to the tool.

We stratified the universe of cancer drugs covered by each Part D plan by contract type (local MA-PD, regional MA-PD, and PDP) and calculated the mean tier position and median coinsurance or copayment amounts in the initial coverage phase. We also identified the cancer drugs that appear most and least frequently on plans’ formularies, to illustrate both the variation in coverage across plans and the corresponding coinsurance or copayment amounts for these drugs.

Study Results

Top Study Methods Study Results Policy Implications NOTES

 
Part D coverage of cancer drugs. Analysis of Part D plan formularies shows that many cancer drugs are covered by almost all plans (Exhibit 1). Both PDPs and local MA-PD plans cover 75 percent of the cancer drugs in the selected universe, while regional MA-PDs cover significantly more (85 percent, p < .01). Generic cancer drugs are covered more frequently by Part D plans than brand-name cancer drugs. Similar results were observed for local MA-PD plans, while regional MA-PD plans more frequently cover both generic and brand-name cancer drugs.

Most frequently covered drugs. Fifteen of the twenty cancer drugs most frequently listed on Part D formularies are brand-name drugs (Exhibit 2). Each of the twenty drugs appears on Part D formularies in 100 percent of PDPs and more than 99 percent of MA-PD plans. Several newly approved drugs, such as Gleevec (imatinib) and Tarceva (erlotinib), are covered nearly universally by Part D plans.

Top Study Methods Study Results Policy Implications NOTES

These findings are consistent with the CMS’s policy of requiring coverage of "all or substantially all" drugs in the anti-neoplastics class, described earlier. There are also several hormonal agents represented in Exhibit 4 (for example, exemestane, letrozole, and bicalutimide) that are classified separately from anti-neoplastics. This indicates that Part D plans cover a wide range of cancer therapies, not just anti-neoplastics.

Pros and cons of prior authorization. Formulary presence is not the only indicator of beneficiaries’ access, however; the application of UM controls must also be considered. We found that Part D plans apply prior authorization significantly more often to brand-name cancer drugs than to generics. Prior authorization has been widely used by state Medicaid programs and commercial health plans and has proved to be an effective cost containment tool. While the current literature is inconclusive about whether prior authorization affects patient outcomes, several studies have suggested that it could cause delays in beneficiaries’ obtaining needed prescriptions.¹⁶ This could be particularly detrimental for patients with diseases such as cancer.

Copayments versus coinsurance. Our findings on beneficiaries’ cost sharing suggest that Part D plans use copayments more often than coinsurance for cancer drugs and that these copayments are often relatively low. Most plans charge copayments of $5–$40 for a thirty-day supply. For the five most costly drugs listed in Exhibit 4, the median Part D copayments represent less than 10 percent of the total negotiated price of the drug.

Our findings on cost sharing for cancer drugs are similar to other studies’ findings regarding drug cost-sharing in commercial health plans. The Henry J. Kaiser Family Foundation’s 2005 annual employer health benefits survey found that most workers in plans with tiered benefits are assessed copayments rather than coinsurance and that drug copayments average $10 for generics, $22 for preferred brand-name drugs, $35 for nonpreferred brands, and $74 for fourth-tier drugs.¹⁷

When plans apply coinsurance of 25 percent instead of copayments, the resulting out-of-pocket cost to the beneficiary is usually higher. We compared the out-of-pocket spending that beneficiaries would incur for a given drug with 25 percent coinsurance to the median copayment for that drug shown in Exhibit 4. Of the top twenty drugs most frequently covered by Part D plans, thirteen would be less expensive for beneficiaries paying the median copayment; five drugs (three brand-name and two generic) would be less expensive for beneficiaries charged 25 percent coinsurance (data not shown).¹⁸

Notably, the copayment and coinsurance figures discussed above are what beneficiaries pay in the Part D initial coverage period, before they incur $2,250 in total drug spending and reach the doughnut hole. For beneficiaries with cancer, particularly those taking the more costly drugs, this period might last only a few months before the coverage gap begins. The impact of the doughnut hole on beneficiaries’ use of medications has not been studied but is an important area for future research.

Study limitations. There are several limitations to our analysis. Data on enrollment in each of the nearly 3,000 Part D plans were not available at this writing; they ultimately will provide insight into population-level access to cancer drugs in Part D. In addition, since premiums for each plan were not available in the data, we did not analyze whether plans with higher premiums offer better coverage of cancer therapies. Our study examines only formulary coverage and cost sharing for cancer drugs; it does not examine the use of those drugs, because those data are not available.

PART D REPRESENTS A NEW BENEFIT MODEL in Medicare. Unlike traditional Medicare, Part D allows the use of cost containment and utilization management controls such as formularies and varying copayment structures. Assuring choice and affordability of a wide array of drug therapies was an important goal for policymakers in designing the program and will be an enduring concern for patients with chronic conditions such as cancer. Our analysis suggests that in 2006, a combination of government regulation and market forces has meant that beneficiaries with cancer have access to nearly all of the cancer drugs we identified, with relatively low cost sharing. Examining the impact of future changes to the CMS’s formulary policies and shifting market dynamics on beneficiaries’ access to cancer therapies will be important areas for additional research.

Editor's Notes

 
The authors are all affiliated with Avalere Health LLC in Washington, D.C. Jennifer Bowman (jbowman{at}avalerehealth.net) is a director; Amy Rousseau is a manager; and David Silk and Catherine Harrison are senior associates.

This research was funded by Avalere Health LLC. The authors thank Dan Mendelson and Bob Atlas for their support and guidance, and Valerie Barton and Lauren Barnes for helpful comments on the manuscript.

NOTES

Top Study Methods Study Results Policy Implications NOTES

 

1. A.M. Miniño, M. Heron, and B.L. Smith, "Table 2: Deaths and Death Rates for 2004 and Age-Adjusted Death Rates and Percent Changes in Age-Adjusted Rates from 2003 to 2004 for the Fifteen Leading Causes of Death: United States, Final 2003 and Preliminary 2004," in Deaths: Preliminary Data for 2004, 2005, http://www.cdc.gov/nchs/data/hestat/preliminarydeaths04_tables.pdf#2 (accessed 13 June 2006); and National Cancer Institute, "Estimated Number of Persons Alive in the U.S. Diagnosed with Cancer by Current Age" (pie chart), in "Estimated U.S. Cancer Prevalence," http://cancercontrol.cancer.gov/ocs/prevalence/prevalence.html#age (accessed 13 June 2006).
2. Authors’ calculations, based on data from CDC, "All Cancer Sites Combined, Invasive Cancer Incidence Counts by Primary Site and Race and Ethnicity, United States, Male and Female, Incidence Counts, Table D.7.1MF" (table available by clicking "Go" in the navigational box), in United States Cancer Statistics: 1999–2002 Incidence and Mortality Web-based Report, 2005, http://apps.nccd.cdc.gov/uscs/Table.aspx?Group=TableAll&Year=2002&Display=n (accessed 13 June 2006).
3. Medicare Payment Advisory Commission, Report to the Congress: Effects of Medicare Payment Changes on Oncology Services, January 2006, http://www.medpac.gov/publications/congressional_reports/Jan06_Oncology_mandated_report.pdf (accessed 1 May 2006).
4. Whereas traditional pharmaceuticals are chemically synthesized, biologics are derived from living sources such as humans, animals, and microorganisms. There is a defined FDA approval process for generic versions of pharmaceuticals, but no such process currently exists for biologics.
5. 42 U.S. Code, sec. 1395x (s)(2)(Q) (2005).
6. Centers for Medicare and Medicare Services, "42 CFR Part 414; Medicare Program; Competitive Acquisition of Outpatient Drugs and Biologicals under Part B; Interim Rule," Federal Register 70, no. 128 (2005): 39031.
7. J. Hoadley et al., The Medicare Drug Benefit: An In-Depth Examination of Formularies and Other Features of Medicare Drug Plans, April 2006, http://www.kff.org/medicare/upload/7489.pdf (accessed 12 June 2006).
8. 42 U.S. Code, sec. 1395w-104(b)(3) (2005); and CMS, "42 CFR Parts 400, 403, 411, 417, and 423 Medicare Program; Medicare Prescription Drug Benefit; Final Rule," Federal Register 70, no. 18 (2005): 4258.
9. Hoadley et al., The Medicare Drug Benefit.
10. 42 CFR, sec. 423.272(b)(2) (2005).
11. CMS, "Medicare Modernization Act Final Guidelines—Formularies: Guidelines for Reviewing Prescription Drug Plan Formularies and Procedures," http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/FormularyGuidance.pdf (accessed 12 June 2006); and CMS, "Why Is CMS Requiring ‘All or Substantially All’ of the Drugs in the Antidepressant, Antipsychotic, Anticonvulsant, Anticancer, Immunosuppressant, and HIV/AIDS Categories?" http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/FormularyGuidanceAllorSubAll.pdf (accessed 12 June 2006).
12. J. Blum, J. Bowman, and C. White, The Impact of Enrollment in the Medicare Prescription Drug Benefit on Premiums, October 2005, http://www.kff.org/medicare/7423.cfm (accessed 13 June 2006).
13. American Society of Health-System Pharmacists, AHFS Drug Information 2005 (Bethesda, Md.: ASHSP, 2005).
14. See Note 5. Medicare Part B carriers commonly interpret the statute as requiring coverage of the following drugs: busulfan, cyclophosphamide, capecitabine, etoposide, melphalan, temozolomide, and methotrexate.
15. Food and Drug Administration, Electronic Orange Book: Approved Drug Products with Therapeutic Equivalence Evaluations, March 2006, http://www.fda.gov/cder/ob/default.htm (accessed 25 April 2006). Searched by active ingredient to map active ingredients to proprietary names.
16. J. Hoadley, Cost Containment Strategies for Prescription Drugs: Assessing the Evidence in the Literature, 14 March 2005, http://www.kff.org/rxdrugs/7295.cfm (accessed 13 June 2006).
17. G. Claxton et al., Employer Health Benefits: 2005 Annual Survey, September 2005, http://www.kff.org/insurance/7315/index.cfm (accessed 13 June 2006).
18. For two generic drugs, tamoxifen and dexamethasone, there was no discernible trend—beneficiaries may pay more or less in a plan with coinsurance, depending upon their plan’s specific cost-sharing requirements and the dosage of the drug.

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