Does the CBO now support co-pay cards for Medicare Part D?

Last week, the Congressional Budget Office (CBO) released an important new memo: Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Services.

After reviewing the evidence, the CBO concluded that prescription drugs can reduce overall healthcare costs—at least in Medicare. The CBO can now officially account for prescription drugs’ beneficial effects in budget forecasts. For example, the cost of closing the Medicare Part D coverage gap just dropped by 41%!

But by supporting the economic benefits of prescription drugs, the CBO may have inadvertently provided an argument to reverse the long-standing federal program ban on co-pay offset programs, a.k.a., co-pay cards, co-pay coupons. Two-thirds of Medicare Part D prescription drug plans (PDPs) have five-tier designs with high out-of-pocket co-insurance. Does the CBO’s change of heart mean co-pay offset programs should be encouraged, not banned, from federal programs?

Read on and let me know if you agree.

THE CBO’S EPIPHANY

In 2010, Medicare outpatient drug spending was $59.4 billion, or 23% of total U.S. retail prescription drug expenditures. (In the expenditure data, "retail" includes retail, mail, and specialty pharmacies.) Medicare was also the fastest-growing payer. Here’s a chart that first appeared in Healthcare Reform Hits U.S. Drug Spending in 2010:

Note that these spending figures combine Part D drug expenditures (88% of Medicare drug expenditures) with non-part D drug expenditures such as Medicare Advantage drugs and some Part B spending in traditional Medicare fee-for-service.

The CBO synthesized results from a small number of studies, and then scaled all changes in medical use with number of prescriptions filled to avoid price effects, such as brand-to-generic substitution.

The official bottom line: A 1.0% increase in the number of prescriptions filled by Medicare beneficiaries would cause Medicare’s spending on medical services to fall by roughly 0.2%. In other words, the government is not afraid of prescription growth, either due to increased utilization or higher adherence.

WHY SHOULD WE CARE?

Healthcare reform’s changes to Medicare Part D provide a real-world case study of CBO’s new mindset.

The PPACA closes the Medicare Part D coverage gap. Over the 2013–2022 period, CBO now estimates that these changes will:

• Increase federal spending for Medicare Part D by $86 billion (relative to what would have been spent without healthcare reform)
• Reduce federal spending for medical services under Medicare by $35 billion (due to the beneficial increase in prescription utilization

Ergo, the net increase in federal spending is projected to be $51 billion (= $86 - $35) from 2013 to 2022.

GOOD NEWS FOR CO-PAY OFFSET PROGRAMS?

The CBO’s new prescription-friendly mindset should encourage programs and policies that increase prescriptions, either by increasing utilization or adherence.

Co-pay offset programs are a controversial way to improve adherence. Payers and pharmacy benefit managers (PBMs) argue that “copay programs induce consumers to choose higher-cost brands (despite higher copays) over lower-cost competitors (despite lower copays).” See PBMs Launch a New Attack on Copay Cards. Others counter that co-pay cards don't increase utilization of higher-cost brand-name drugs and don't reduce generic usage, but do increase adherence. See A Defense of Co-Pay Cards.

This debate is very important for Medicare Part D, despite the shrinking coverage gap. According to Avalere Health’s analysis of 2013 Medicare Part D prescription drug plans (PDPs):

• In 2013, over two-thirds of Part D plans will have five or more tiers, up from 58 percent in 2012 and 41 percent in 2011. The overwhelming majority of PDPs (90 percent) will use specialty tiers.
• Part D plans are increasingly using percentage cost sharing instead of fixed dollar copayments, increasing the variability and amount of patients' out-of-pocket costs.
• In 2013, all five-tier plans use cost sharing on the fifth tier, almost half use cost sharing on tier four, and one-third of plans use percent cost sharing on tier three (the preferred brand tier).

For a specialty drug, the average monthly cost per prescription is usually $2,000 to $3,000, so cost sharing can create an enormous financial burden for seniors. To help patients afford these out-of-pocket expenses, pharmaceutical manufacturers offer co-pay offset programs that cover the patient’s portion. Per A New Reality Check on Co- Pay Offset Programs, nearly 70% of biological drugs have co-pay programs, compared with only 44% of traditional brand-name drugs.

You may recall the CBO’s predictions of fiscal disaster due to the country’s rising healthcare costs. Are manufacturers' co-pay programs part of the solution for patients...and for Medicare?