Part D could save billions if CMS had negotiating power

Medicare Part D pays more for name-brand drugs than many other countries and even other U.S. government programs, such as Medicaid and the Veterans Health Administration (VHA). The Carlton University School of Public Policy and Administration found that, because brand-name drug prices are so high, many beneficiaries fail to fill prescriptions due to financial constraints. Reducing the prices would reduce premiums and co-pays, as well as taxpayer contributions used to fund Part D.

Part D

Part D is the largest federal drug program, with $69.3 billion spent on prescription drugs in 2013 and over 39.1 million people covered. Part D represents about 7 percent of the global prescription drug market, and about 58 percent of Part D spending goes to brand-name manufacturers. Plan sponsors are able to obtain rebates from manufacturers and pharmacies, but the HHS Office of Inspector General (OIG) has previously expressed doubts that these savings are passed on to beneficiaries in the form of lower premiums. Medicare itself is prohibited from interfering with these negotiations and therefore cannot leverage its purchasing power. Without congressional approval, CMS cannot reduce drug prices by securing rebates or discounts.


According to the study, due to CMS’ constraints, the Part D program pays 73 percent more than Medicaid and 80 percent more than the VHA for drugs. If Part D could secure the same prices as these other programs, it would save between $15.2 billion and $16 billion per year. However, even Medicaid and VHA pay higher prices than many countries in the Organization for Economic Co-operation and Development (OECD). The majority (21) of OECD countries cover 100 percent of their populations with a public drug plan, while the U.S. and Canada rely on private plans and have higher drug costs. Studies show that U.S. costs per capita for drugs are $1,010, while the OECD average is $498. Further, 19 percent of Americans chose not to fill prescriptions due to cost in 2014, which is a high ratio of cost related non-adherence (CRNA). Although the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) reduced the CRNA from 26 percent in 2010, other countries have ratios from 2 percent to 13 percent.

In 2014, Part D provided no coverage for the first $310 a beneficiary spent on drugs per year without a rebate, then covered 75 percent of spending between $310 and $2,850 with a rebate average of 17 percent. Between this amount and the catastrophic limit on out-of-pocket costs of $4,550, the study notes, there is limited coverage for generic and brand-name drugs although there is a mandatory discount of 50 percent for brand name drugs. The report notes that discounts and rebates are different, as rebates are reimbursed by manufacturers after the drug is purchased at full price and discounts are price reductions at the point of sale. Sponsor rebates lowered Part D payments to an average of 83 percent of official manufacturer prices.

Medicaid receives a mandatory rebate of at least 23.1 percent of the average manufacturer’s price for brand-name drugs. An inflation rebate is imposed if the average price rises faster than general inflation, and represents more than half of brand-name drug rebates. The VHA has four different options for receiving lower prices on drugs, and by utilizing the option that offers the lowest price, VHA paid on average about 46 percent of official manufacturer prices.


Proponents of the current system argue that public interference would undermine the competitive system used by plan sponsors. The report’s authors argue that Switzerland and the Netherlands also have managed competition models, like Part D, and that lower drug prices do not undermine competition among insurers and beneficiaries in these countries are subject to lower premiums. The authors also dispute the argument that reducing prices would also reduce research and development spending with by arguing that the Part D system offers few incentives for innovation, and manufacturers are more likely to produce new drugs that are extremely similar to existing drugs, but more expensive. They recommend that Part D should reduce brand name drug prices to at least match the levels of Medicaid or VHA, introduce mandatory discounts similar to VHA’s inflation discount, require generic substitution, and use these price reductions to reduce copays and deductibles.

Kusserow on Compliance: OIG congressional testimony on Medicare Part D fraud

Representatives from the HHS Office of Inspector General (OIG) testified at a July 14 congressional hearing about vulnerabilities of the Medicare Part D program to fraud and abuse. The program currently has more than 39 million enrollees who obtain their prescription drugs at a cost of over $120 billion a year. In the last three years, the OIG reported that its investigations related to this program resulted in 339 criminal actions, 31 civil actions, and over $720 million in investigative receivables. Serious weaknesses in controls mean that fraud and abuse vulnerabilities still exist. The evidence of this has been reflected in recently released OIG reports on the subjects of Part D integrity and questionable billing, where the agency found:

  • spending for Part D drugs increased from $51.3 billion to $121.1 billion between 2006 and 2014;
  • costs for commonly abused opioids grew from $1.5 billion to $3.9 billion, driven by increases both in the number of beneficiaries receiving these opioids and the average number of prescriptions per beneficiary;
  • 1,432 retail pharmacies had questionable billing practices, which totaled $2.3 billion billed to Part D in 2014;
  • 468 pharmacies billed for commonly abused opioids at an extremely high rate, indicating billing for medically unnecessary drugs, those used inappropriately, or those drugs diverted and resold for profit;
  • 216 pharmacies billed for beneficiaries receiving an unusually high number of commonly abused opioids, suggesting “doctor shopping” to inappropriately obtain drugs;
  • 314 pharmacies billed for a high number of different types of drugs, per beneficiary, indicating billing for drugs that were never provided or were medically unnecessary; and
  • some pharmacies billed, on average, for more than 12 different types of drugs per beneficiary, which is double the national average.

As a result the OIG has been raising concerns about adequacy of oversight and made a number of recommendations to CMS to better safeguard the program and protect beneficiaries. Although, the OIG credited CMS with some progress, it called for CMS, its National Benefit Integrity Medicare Drug Integrity Contractor (MEDIC), and Part D plan sponsors to do more to protect the program. The OIG recommendations center around two themes: (1) leveraging Part D data to identify vulnerabilities; and (2) employing additional tools to enhance the oversight of the Part D program. The OIG called upon CMS to take action on certain unimplemented recommendations. In support of that recommendation, the OIG specifically stated that:

  • CMS needs to require plan sponsors to report the number of instances of potential fraud, waste, and abuse identified, or the actions taken to address these instances. Without this information, it is impossible for CMS to review the effectiveness of plan sponsors’ fraud detection programs.
  • CMS and plan sponsors need to monitor beneficiary utilization for a wider range of drugs susceptible to abuse than it currently does. This includes a recommendation to expand sponsors’ and CMS’s drug utilization review to cover certain non-controlled substances.
  • The MEDIC integrity contractor for Part D, which was found to only use proactive data analysis to initiate a small percentage of investigations and case referrals and to rely on external sources to identify most incidents of potential fraud abuse, should be more thoroughly investigating potential fraud and abuse.
  • CMS must exercise better oversight of both the plan sponsors and the MEDIC to ensure it is reducing the program’s vulnerability to fraud, waste, and abuse.
  • CMS, the MEDIC, and plan sponsors need to strengthen program oversight by employing additional tools, as the current tools are insufficient to meet the needs of the program.
  • Plan sponsors do not have adequate controls to prevent improper payments and CMS has not exercised sufficient oversight of them to prevent improper payments for drugs that are not covered by Part D.
  • CMS needs to provide additional oversight of plan sponsors to ensure effective implementation of compliance programs, one of the primary tools for Part D program integrity.
  • The MEDIC currently does not have administrative authority to recommend recoupment of payments for inappropriate services and CMS needs to establish a mechanism to allow them to do this in cases that have been declined by law enforcement agencies.
  • The law should be changed to more effectively deal with beneficiaries who may be abusing the program or inflicting harm on themselves by overutilizing drugs.
  • Beneficiaries should be restricted to a limited number of pharmacists or prescribers. This program, referred to as “lock-in,” has been successfully used by state Medicaid programs.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.

Contraception mandate saves women at least $1.4 billion

The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) contraception mandate has saved women $1.4 billion a year with respect to oral contraception alone, according to a study conducted by researchers at the University of Pennsylvania Leonard Davis Institute of Health Economics and published in Health Affairs. The study, which is the first comprehensive analysis of the mandate’s effect on out-of-pocket contraception payments, also found a significant effect on payments for intrauterine devices (IUDs), as well as smaller effects on other forms of birth control. Co-author Daniel Polsky, Ph.D., suggested, “It’s possible that by decreasing out-of-pocket expenses, more women will use contraception, or switch to a longer-term method.”


Researchers reviewed 17.6 million monthly observations from a prescription claims database from a large national insurer for 790,895 women ages 13 to 45 who were enrolled in private health insurance for at least one month from 2008 to 2013. Prior to the implementation of the mandate, contraception accounted for 30 to 44 percent of prescription health costs for the women who used them. Between June 2012 and June 2013, the average out-of-pocket expense for the birth control pill decreased by 38 percent, from $32.74 in 2012 to $20.37 in 2013; the average out-of-pocket expense for IUD insertions decreased by 68 percent, from $262.38 in 2012 to $84.30 in 2013. The authors estimate that the ACA saved an average pill user $255 per year; when that figure is extrapolated to the estimated 6.88 million privately insured women using oral contraceptives, the annual saving amounts to $1.4 billion. The research revealed decreases in less popular forms of birth control, as well. However out-of-pocket payments for the ring and the patch decreased by only 2 and 3 percent, respectively.

As of June 2013, most women in the study paid nothing for contraception. However, at that time, grandfathered plans still covered 36 percent of insured workers, including some women using contraception. In addition, the ACA does not require insurers to cover all brands of contraceptive devices.


Further research is needed. However, should the decrease in out-of-pocket expenses lead to increased usage of contraceptives, Polsky notes, “that could potentially lead to a lower overall fertility rate, and potentially increased economic opportunities for women and their families.”

Kusserow on Compliance: OIG warns Medicare Part D fraud and drug diversion is growing

The Office of Inspector General (OIG) reported that prescription drug abuse continues to grow in this country, to the point of being an epidemic problem. The OIG stated that improper use of pharmaceuticals and overuse of opioids has resulted in over 1.4 million emergency department visits and 700,000 inpatient hospital stays a year, much of which is a result of drug diversion.

The OIG report recapped problems identified with drug abuse and diversion in Medicare Part D since its inception in 2006. Between 2006 and 2014, spending for commonly abused opioids grew from $1.5 billion to $3.9 billion, an increase of 156 percent. Growth in spending for these opioids outpaced both the growth in spending for all Part D drugs (which grew 136 percent) and the growth in the number of beneficiaries receiving Part D drugs (which grew 68 percent). The OIG highlighted ongoing concerns about the levels of abuse and diversion of Part D drugs and uncovered significant levels of questionable billing associated with pharmacies, prescribers, and beneficiaries involving both controlled and non-controlled substances. This, in turn, raises concerns about the adequacy of oversight of the Part D Program. This report was issued tandem with a portfolio, Ensuring the Integrity of Medicare Part D (OEI-03-15-00180), which summarizes the OIG’s body of work and provides an update on CMS’ efforts to address the weaknesses in Part D program integrity identified by the OIG.

The OIG has made a variety of recommendations to better safeguard the program and protect beneficiaries, many of which have not yet been implemented. As such, issues with fraud and abuse continue to exist in Part D. They relate to both controlled substances, such as commonly abused opioids, and non-controlled substances. The diversion of non-controlled substances from legitimate to illegal purposes is becoming more common and fraud related to these drugs can present a significant financial loss to Medicare. Examples of non-controlled drugs include respiratory and antipsychotic medications.

The OIG analysis of prescription drug event (PDE) records from 2006 to 2014 has evidenced trends in spending for Part D drugs. Further, the report noted that geographic hotspots for specific non-controlled drugs vulnerable to fraud and abuse exist. The report identified a number of retail pharmacies with questionable billing practices, including:

  • 1,432 facilities that billed extremely high amounts for at least one of five measures reviewed in the report;
  • 292 facilities that billed extremely high amounts for multiple measures;
  • 403 facilities that billed an extremely high number of prescriptions per beneficiary (for example, over 62 prescriptions per beneficiary in one case);
  • 468 facilities that billed commonly abused opioids in an extremely high percentage of their prescriptions;
  • 216 facilities that billed beneficiaries who averaged at least four prescribers for commonly abused opioids;
  • 314 facilities that billed a high number of different types of drugs per beneficiary; and
  • 332 facilities that billed high proportions of beneficiaries who received excessive supplies of at least one Part D drug in a single year.

The report credited CMS with making progress in its Part D program integrity efforts, however evidence of its reviews demonstrate that more needs to be done to address fraud and abuse. A program expanding at the rate of Part D requires continuous development and refining of methods to uncover, address, and prevent fraudulent activity. The OIG noted that its commitment is to continue monitoring pharmacy billing and conducting investigations of questionable billing, however it also called upon CMS to employ all of the tools at its disposal to more effectively identify and fight fraud, waste, and abuse in the program. The OIG states that this requires CMS to take action and fully implement the OIG’s previous recommendations.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow on Compliance Newsletter

Copyright © 2015 Strategic Management Services, LLC. Published with permission.