The federal government has less authority to set Medicare drug reimbursement prices than officials at the Centers for Medicare & Medicaid Services (CMS) had thought, according to a ruling by Judge Henry H. Kennedy Jr of the US District Court in Washington, DC, in a case (Hays v Leavitt [1:08-cv-01032-HHK]) filed by a person with chronic obstructive pulmonary disease. The patient, Ilene Hays, had received a prescription for DuoNeb, a combination inhalation drug made by Mylan’s Dey subsidiary.
There was no dispute that Medicare would pay for the medication under Part B; the litigation was over how to compute the payment. The CMS argued that in all cases, it should calculate the amount of the least costly alternative and base its payment on that figure. In this case, that amount would have been determined by the costs of separate doses of DuoNeb’s 2 components, albuterol and ipratropium bromide. Paying more would violate the provision in the Medicare law for the program to deny coverage for items that are “not reasonable and necessary for the diagnosis or treatment of illness or injury, or to improve the functioning of a malformed body member.” The Medicare Program Integrity Manual that went into effect on November 1 applied the least costly alternative concept, which was originally designed for durable medical equipment, to all Medicare reimbursements.
Judge Kennedy, however, found that such a reading of the legislation was wrong and conflicted with the part of the law that specifies how Part B drug pricing is to be established—that is, by averaging the drug's usual selling price. His opinion noted that if Medicare were allowed to pay only for separate doses of the DuoNeb’s component drugs, the government would be given “broad discretion” to rewrite the payment formula.
Medicare Prescription Drug Coverage
Heart Drugs Top Part D Spending
For the first time, the CMS released detailed data on how the Medicare Part D benefit is being used—data that program officials call an “unprecedented tool” for evaluating prescription drug use in the United States. The information reveals that the number one prescription drug used by Medicare beneficiaries, as measured by dollar outlays in 2006, was Lipitor. Rounding out the list of the top 10 drugs by cost were, in order, Plavix, Zyprexa, Nexium, Seroquel, Risperdal, Prevacid, Norvasc, Aricept, and Advair Diskus. Overall, the top 3 therapeutic classes of drugs by cost accounted for nearly 50% of the agency’s Part D spending; 22.7% was spent on cardiovascular medications, and 17% and 8.7% were spent on psychotherapeutics and GI drugs, respectively.
The CMS also reported that in 2007, 31.7% of Medicare enrollees reached the “doughnut-hole” coverage gap, but about two-thirds of these beneficiaries continued to be reimbursed because either they were receiving the low-income subsidy or they had enrolled in a plan with doughnut-hole coverage. Just 8.8% of Part D enrollees reached the catastrophic-coverage phase (on the other side of the coverage gap), in which Medicare pays 95% of drug costs.
When the CMS released detailed figures from 2006 and 2007, it also announced totals from fiscal year 2008, which ended on September 30. These figures showed that the government spent $44 billion on Part D, which was $6 billion less than the fiscal 2007 figure and $30 billion less than the Congressional Budget Office’s projection for 2008, which was made before Part D was launched. The main reason for the reduced outlays was that generic drugs accounted for 64% of prescriptions; the CMS had estimated that the figure would be closer to the 61% reported for private sector health plans.
Medicare Prescription Drug Coverage
Audits of Rebates More Difficult Than Expected
The CMS is having a difficult time ensuring that submitted estimates of price concessions that Part D sponsors expect from pharmaceutical manufacturers reflect the prices actually paid. A new report from the Government Accountability Office (GAO) notes that although the agency originally expected to complete 169 audits of such data from the 2006 plan year by the end of October, it completed only half that number. “According to CMS officials, the remaining audits were delayed due to financial constraints,” the GAO reported.
The problems, however, extend beyond staffing. The CMS is finding little consistency in how plans define price concessions and allocate rebates from pharmaceutical manufacturers between Medicare beneficiaries and enrollees covered under other policies. For example, when a plan uses the same formulary for Part D and its other policies, it may split the rebate equally, while plans that use different formularies may use different allocation practices. Moreover, because plans have different enrollee population characteristics, it may be impossible, the CMS says, to devise a concessions standard that would quickly pinpoint plans with suspicious figures.
The full GAO report is available at http://www.gao.gov/new.items/d081074r.pdf.
