Medicare pays the difference between these  amounts and the cost sharing required by the plans (see fig. CMS also allows plans participating in Part D to use a  specialty tier in their formulary for high-cost drugs with negotiated prices  exceeding a certain threshold, set at $500 per month in 2007 and $600 permonth in 2008 through 2010. Specialty tier–eligible drugs represent a limited number of drugs used by a  small proportion of beneficiaries and commonly include  immunosuppressant drugs, those used to treat cancer, and antiviral drugs. In 2007, Specialty Tier–Eligible Drugs Accounted for 10 Percent of Part D Spending and Most of That Spending Was for Prescriptions Filled by LIS Beneficiaries

We found that specialty tier–eligible drugs accounted for about 10 percent,  or $5.6 billion, of the $54.4 billion in total prescription drug spending under  Part D MA-PD and PDP plans in 2007. 4.) While only 8 percent of Part D beneficiaries in MA-PD and PDP plans who  did not use specialty tier–eligible drugs reached the catastrophic coverage  threshold of the Part D benefit in 2007, 55 percent of beneficiaries who  used at least one specialty tier–eligible drug reached the threshold. Differences in Plans’ Cost-Sharing Structures Result in Out-of-Pocket Costs for Non-LIS Beneficiaries That Vary Initially and Then Become Similar, but Different Structures Do Not Significantly Affect Out-of-Pocket Costs for LIS Beneficiaries

Based on our review of typical cost-sharing structures, we found that, for  non-LIS beneficiaries who use a given specialty tier–eligible drug, different  cost-sharing structures can be expected to result in varying out-of-pocket  costs during the benefit’s initial coverage period. However, as  long as beneficiaries reach the catastrophic coverage threshold in a  calendar year—as 31 percent of non-LIS beneficiaries using at least one  specialty tier–eligible drug did in 2007—their annual out-of-pocket costs  for that drug are likely to be similar regardless of their plans’ cost-sharing  structures. For LIS Beneficiaries, Plans’ Cost-Sharing Structures Do Not Significantly Affect Out-of- Pocket Costs

LIS beneficiaries’ out-of-pocket costs for all drugs, including specialty tier– eligible drugs, are not significantly affected by different plans’ cost-sharing  structures because Medicare has established fixed limits on the cost- sharing amounts for all LIS beneficiaries, regardless of the plans in which  they are enrolled. These are variations between drugs, variations  across plans for the same drug, and variations from year to year. For example, in 2009—across our sample of 35 plans—non- LIS beneficiaries who took the cancer drug Gleevec for the entire year  could have been expected to pay about $6,300 out-of-pocket because  Gleevec had an average negotiated price of about $45,500 per year, while  beneficiaries could have been expected to pay about $10,500 out-of-pocket  over the entire year if they took the Gaucher disease drug Zavesca, which  had an average negotiated price of about $130,000 per year. For example, the average negotiated price for a 1-year supply of Gleevec  across our sample of plans increased by 46 percent, from about $31,200 in  2006 to about $45,500 in 2009. Correspondingly, the average out-of-pocket  cost for a non-LIS beneficiary taking Gleevec for an entire year could have  been expected to rise from about $4,900 in 2006 to more than $6,300 in  2009. Plan Sponsors Report Having a Limited Ability to Negotiate Price Concessions for Specialty Tier– Eligible Drugs but Frequently Use Practices to Manage Utilization

All of the Part D plan sponsors we interviewed, including the seven that  provided price concession data for our sample of specialty tier–eligible  drugs, reported having a limited ability to negotiate price concessions with  manufacturers of specialty tier–eligible drugs. The reasons they gave  included a lack of competitors for many of these drugs, CMS formulary  requirements that may limit plan sponsors’ ability to exclude drugs from  their formularies in favor of competing drugs, and low utilization for some  drugs, which limits incentives for manufacturers to provide price  concessions. However, plan sponsors are able to employ practices, such as  prior authorization, to manage beneficiaries’ utilization of specialty tier– eligible drugs, and they employ these practices somewhat more often for  specialty tier–eligible drugs than for other drugs. In contrast, plan sponsors told us that they were more often able to  negotiate price concessions for drugs in classes where there are more  competing drugs on the market—such as for drugs used to treat  rheumatoid arthritis, multiple sclerosis, and anemia. CMS agreed with portions of our  findings, took issue with the amount of a deductible we present in one of  our figures, and suggested additional information for us to include in our  report. The plan sponsors provided technical  comments, which we incorporated as appropriate. At the time our study began, the 2007 PDE  data were the most recent available. and report development.
Why GAO Did This Study

The Centers for Medicare & Medicaid Services (CMS) allows Part D plans to utilize different tiers with different levels of cost sharing as a way of managing drug utilization and spending. One such tier, the specialty tier, is designed for high-cost drugs whose prices exceed a certain threshold set by CMS. Beneficiaries who use these drugs typically face higher out-of-pocket costs than beneficiaries who use only lower-cost drugs. GAO was asked to provide information about high-cost drugs eligible for a specialty tier. This report provides information on these drugs including spending under Medicare Part D in 2007, the most recent year for which claims data were available; how different cost-sharing structures could be expected to affect beneficiary out-of-pocket costs; how negotiated drug prices could be expected to affect beneficiary out-of-pocket costs; and information Part D plan sponsors reported on their ability to negotiate price concessions and to manage utilization. GAO examined CMS data, including 2007 claims data, negotiated price and out-of-pocket cost data for selected drugs--including the 10 highest-utilization specialty tier-eligible drugs in 2007--and plans from 2006 through 2009, and formulary information provided to CMS by plan sponsors. GAO interviewed officials from CMS and 8 of the 11 largest plan sponsors, based on enrollment in 2008. Seven of the 11 plan sponsors provided data including price concessions for selected drugs for 2006 through 2008.

What GAO Found

High-cost drugs eligible for a specialty tier commonly include immunosuppressant drugs, those used to treat cancer, and antiviral drugs. Specialty tier-eligible drugs accounted for 10 percent, or $5.6 billion, of the $54.4 billion in total prescription drug spending under Medicare Part D plans in 2007. Medicare beneficiaries who received a low-income subsidy (LIS) accounted for most of the spending on specialty tier-eligible drugs--$4.0 billion, or 70 percent of the total. Among all beneficiaries who used at least one specialty tier-eligible drug in 2007, 55 percent reached the catastrophic coverage threshold, after which Medicare pays at least 80 percent of all drug costs. In contrast, only 8 percent of all Part D beneficiaries who did not use a specialty tier-eligible drug reached this threshold in 2007. Differences in plans' cost-sharing structures--flat copayments or coinsurance rates--can be expected to result in varying out-of-pocket costs for non-LIS beneficiaries only until they reach the catastrophic coverage threshold, which 31 percent of non-LIS beneficiaries did in 2007. After that point, non-LIS beneficiaries' annual out-of-pocket costs for a given drug are likely to be similar regardless of their plans' cost-sharing structures. LIS beneficiaries' out-of-pocket costs are generally not affected by their plans' cost-sharing structures because Medicare sets fixed limits on the cost-sharing amounts for these beneficiaries and pays any difference between these fixed amounts and the amount required under the plans' cost-sharing structures. Variations in negotiated drug prices--between different drugs, across plans for the same drug, and over time--can affect out-of-pocket costs. For example, the average negotiated price for Gleevec across our sample of plans increased by 46 percent between 2006 and 2009, from about $31,200 per year to about $45,500 per year. Correspondingly, the average out-of-pocket cost for a non-LIS beneficiary taking Gleevec for the entire year could have been expected to rise from about $4,900 in 2006 to more than $6,300 in 2009. Plan sponsors reported having little leverage to negotiate price concessions from manufacturers for most specialty tier-eligible drugs, although sponsors were more often able to negotiate price concessions for drugs with more competitors on the market--such as for drugs used to treat rheumatoid arthritis. One factor sponsors cited for this limited leverage was CMS requirements limiting sponsors' ability to exclude drugs from their formularies in favor of competing drugs. Finally, plan sponsors employ practices such as prior authorization to manage beneficiaries' utilization of specialty tier-eligible drugs, and sponsors reported employing those practices somewhat more frequently for these drugs than for lower-cost Part D drugs. GAO provided a draft of this report to CMS. CMS agreed with portions of GAO's findings and suggested additional information for us to include in our report, which we incorporated as appropriate.