CMS Oversees Coverage Gap Discounts Provided by Plan Sponsors and Paid for by Manufacturers

CMS oversees the provision of discounts by plan sponsors to eligible  beneficiaries who reach the coverage gap, and ensures that the discounts  are paid for by drug manufacturers. CMS also tracks the payment of discounts  by drug manufacturers to plan sponsors and has implemented a dispute  resolution process to resolve manufacturer disputes about discounts. In  addition, CMS performs other activities, such as monitoring beneficiary  complaints, and has reported on certain Discount Program outcomes. CMS Checks Prescription Drug Data to Verify That Plan Sponsors Provide Accurate Discounts to Eligible Beneficiaries

CMS performs 15 automated checks of PDE data specific to the Discount  Program that verify whether plan sponsors have provided and accurately  calculated discounts at the point-of-sale to eligible beneficiaries who  reach the coverage gap. In addition, CMS has stated that the agency conducts other monitoring  activities of the Discount Program, which include reporting on certain  outcomes of the program and monitoring Medicare Part D drug prices. Plan Sponsors, PBMs, and Manufacturers Had Different Perspectives on Aspects of the Drug Pricing and Plan Design Effects of the Discount Program

Plan sponsors, PBMs, and drug manufacturers we spoke with had  different perspectives on aspects of the drug pricing and plan design  effects of the Discount Program, which include drug prices, rebates,  formularies, plan benefit design, and utilization management practices. The three PBMs we interviewed also told us they observed that some  manufacturers decreased the amount of rebates for the brand-name  drugs they offered, which they believe occurred as a result of the  Discount Program. In comparison, most of the plan sponsors did not  observe manufacturers decrease rebate amounts and most  manufacturers reported no effects on their rebate negotiations as a result  of the Discount Program. Most plan sponsors and PBMs also reported  that the Discount Program did not affect their Part D plan formularies,  plan benefit design, or utilization management practices. Most Plan Sponsors and PBMs Believe the Discount Program May Have Been a Factor in Rising Drug Prices, While Most Manufacturers Said It Has Not

Six of the seven plan sponsors and two of the three PBMs we interviewed  told us they believe the Discount Program may have been a contributing factor in the rising prices of brand-name drugs by some manufacturers.Some sponsors and one PBM told us they believe that some  manufacturers raised prices for their brand-name drugs to recoup the  costs of the discounts that they anticipated paying. Prices Increased at a Similar Rate for Brand-Name Drugs Used by Beneficiaries in the Coverage Gap and by Those Who Did Not Reach the Gap

We found that prices for brand-name drugs used by beneficiaries in the  coverage gap increased similarly to those used by beneficiaries who did  not reach the gap, before and after the Discount Program was  implemented in January 2011. From January 2007 to December 2010,  prior to the implementation of the Discount Program, the median price  (weighted by the utilization of each drug) for the basket of 77 brand-name  drugs used by beneficiaries in the coverage gap increased 36.2 percent  (see fig. 2). During the first year with the Discount Program (from December 2010  through December 2011), the median prices for the two baskets  increased equally at a rate of about 13 percent. 3). The greatest  annual percent increase for the two baskets of brand-name drugs  occurred from December 2010 through December 2011, during which  time the median price increased 13.1 percent for the basket of brand- name drugs used by beneficiaries in the coverage gap and 13.2 percent  for the basket of brand-name drugs used by beneficiaries who did not  reach the coverage gap. Agency Comments

HHS reviewed a draft of this report and in its written comments noted that  our finding on the perspectives of stakeholders (Medicare Part D plan  sponsors, drug manufacturers, and PBMs) on the effects of the Discount  Program is consistent with HHS’s expectations and experience. HHS commented that CMS will continue to monitor  the Discount Program to ensure that discounts on brand-name drugs are  applied accurately and in a timely manner for Medicare Part D  beneficiaries. GAO staff members who made key  contributions to this report are listed in appendix V.

Appendix I: Methodology for Examining Brand-Name Drug Price Trends

To describe how prices changed before and after implementation of the  Medicare Coverage Gap Discount Program (Discount Program) for  brand-name drugs, we compared the trend of Medicare Part D prices  from January 2007 to December 2011 for a basket of brand-name drugs  used by beneficiaries in the coverage gap with a basket of brand-name  drugs used by beneficiaries who did not reach the gap in 2011. We  compared price trends for these two baskets because brand-name drugs  used by beneficiaries in the coverage gap in 2011—the year the Discount  Program began—may be more susceptible to price increases, since  manufacturers must provide a 50 percent discount for these drugs  compared with drugs used by beneficiaries that do not reach the gap and  thus are not subject to the discount.
Why GAO Did This Study

The Patient Protection and Affordable Care Act of 2010 established the Discount Program to help Medicare Part D beneficiaries with their prescription drug costs while in the coverage gap, which occurs between the initial and catastrophic coverage periods where Medicare helps pay for drug costs. Until the Discount Program began in 2011, beneficiaries in the coverage gap paid 100 percent of drug costs. The Discount Program required manufacturers to provide a 50 percent discount on the price of brand-name drugs for beneficiaries in the gap.
GAO was asked to describe (1) CMS's oversight of the Discount Program; (2) perspectives of plan sponsors, manufacturers, and PBMs on effects of the Discount Program; and (3) how prices for brand-name drugs used by beneficiaries in the coverage gap and by those who did not reach the gap changed before and after the start of the Discount Program. To describe CMS's oversight, GAO reviewed CMS documents and interviewed CMS officials. To describe perspectives on the effects of the Discount Program, GAO interviewed the 7 largest Part D plan sponsors based on enrollment data, 8 of 10 manufacturers of brand-name drugs with the highest expenditures in the gap, and 3 PBMs who contracted with sponsors GAO interviewed. To describe price changes, GAO used CMS Part D data from 2007 to 2011 to track prices for high-expenditure brand-name drugs used by those in and those who did not reach the gap. GAO compared prices for the two baskets because drugs used by those in the gap may be more susceptible to price increases since manufacturers must provide the discount for these drugs.

What GAO Found

As part of Medicare's Part D Coverage Gap Discount Program (Discount Program), the Centers for Medicare & Medicaid Services (CMS), located within the Department of Health and Human Services (HHS), oversees the provision of discounts by plan sponsors to eligible beneficiaries when they purchase brand-name drugs and monitors that discounts are paid for by drug manufacturers. CMS checks prescription drug data to verify that sponsors provide accurate discounts at the point-of-sale to eligible beneficiaries in the coverage gap. These checks include verifying whether a beneficiary has reached the coverage gap and that the plan sponsor has calculated the discount amount correctly. CMS also tracks that manufacturers pay plan sponsors for the discounts sponsors have provided to beneficiaries and has implemented a dispute resolution process for manufacturers disputing discount payment amounts. CMS also performs other activities such as monitoring beneficiary complaints related to the program.
The plan sponsors, pharmacy benefit managers (PBM) that negotiate on behalf of plan sponsors, and drug manufacturers GAO interviewed had different perspectives on aspects of the drug pricing and plan design effects of the Discount Program. Most sponsors and PBMs believed the Discount Program may have been a contributing factor in the rising prices of some brand-name drugs by some manufacturers. However, most manufacturers did not believe the Discount Program affected drug prices they negotiated with sponsors and PBMs. The PBMs we interviewed also told us they observed that some manufacturers decreased the amount of rebates for the brand-name drugs they offered, which they believe occurred as a result of the Discount Program. In comparison, most of the plan sponsors did not observe manufacturers decreasing rebate amounts and most manufacturers reported no effects on their rebate negotiations as a result of the Discount Program. Most sponsors and PBMs told GAO that the Discount Program did not affect Part D plan formularies, plan benefit designs, or utilization management practices.
GAO found that the prices for high-expenditure brand-name drugs used by beneficiaries in the coverage gap and by those who did not reach the gap in 2011 increased at a similar rate before and after the Discount Program was implemented in January 2011. Specifically, from January 2007 to December 2010, before the Discount Program began, the median price for the basket of 77 brand-name drugs (weighted by the utilization of each drug) used by beneficiaries in the coverage gap increased 36.2 percent. During the same period, the median price for the basket of 78 brand-name drugs used by beneficiaries who did not reach the coverage gap increased 35.2 percent. From December 2010 through December 2011, the first year with the Discount Program, the median price for the two baskets increased equally by about 13 percent, the greatest increase in median price for both baskets compared to earlier individual years.
HHS reviewed a draft of this report and in its written comments noted that GAO's findings on stakeholder perspectives and changes in brand-name drug prices were consistent with its experience and CMS's drug price analysis. HHS stated that CMS will continue to monitor the Discount Program and Part D drug prices.