Better use of medications can save money for Medicare by helping beneficiaries avoid some hospital and physician services, and growth in Part D activity is expected to shave $35 billion from Medicare’s expected spending of $5.6 trillion between 2011 and 2022, according to the Congressional Budget Office (CBO).

The savings bolster the political argument for supporting Part D expansion at a time when politicians and health care experts worry about slowing the growth of the mammoth federal budget deficit. The CBO’s proof of savings is new. Previously, the “CBO found insufficient evidence of an ‘offsetting’ effect of prescription drug use on spending for medical services. But recently, more analysis has been published that demonstrates a link between changes in prescription drug use and changes in the use of and spending for medical services.”

Part D becomes increasingly popular each year as more and more Medicare beneficiaries realize the advantages of having access to medications in a competitive marketplace. Enrollment grew 12 percent during 2012, according to a study by Avalere Health, a consulting firm. The program has grown each year since it began in 2006, and 35 million of the 49 million eligible Medicare beneficiaries are now enrolled in a Part D plan.

“Avalere found that beneficiaries are seeking and selecting low-cost prescription drug plan options during the open enrollment period,” according to Bonnie Washington, Avalere senior vice president and head of the company’s health reform practice. “The shift of enrollees to low-cost plans validates that market competition works, as enrollees are rewarding sponsors with innovative packages that offer an attractive monthly premium. However, beneficiaries using expensive Part D products may face greater cost-sharing under these plans, making pharmacy selection critical.”

Public spending on Part D also will increase as the Affordable Care Act cuts back sharply on the tax subsidies given to companies that provide drug coverage to their retired workers. According to the 2012 Annual Medicare Trustees Report, the share of Part D beneficiaries getting some financial help from their former employers was 17 percent in 2011; with the subsidies disappearing this year, it is anticipated that by 2016, it is expected that only 2 percent of beneficiaries will be getting this help from their former companies.

The growth in Part D spending has been restrained in recent years as many generic versions of brand-name drugs have become available, often at a fraction of the brand-name drug price.

“There has been a patent cliff, with an extremely large number of drugs going off patent,” said Leigh Purvis, a drug policy expert at the AARP Public Policy Institute. With people switching by the millions to cheaper generics, spending growth has slowed. By 2015, or thereabouts, the trend may end, with fewer drugs going off patent, and there will be a return to business as usual, a return to “high levels of spending from brand names,” Purvis said.

Another likely driver of expanded spending is the development of new biologic compounds. Companies are rushing to develop these compounds tailored toward individual needs or, for example, to provide cancers treatments with fewer side effects. Companies have a 12-year exclusive period to produce these drugs without generics company competition. The increasing popularity of these drugs will mean bigger bills for both the government under Part D and consumers.

As with all consumer who shops for savings, beneficiaries may go outside their Part D pharmacy network, but this means they must be careful to avoid the dangers of interactions from incompatible drugs. Within a single Part D plan, drugs ordered at a plan-participating pharmacy means the computer system of that vendor is checking for possible harmful interventions. Someone who goes outside that vendor, in an effort to find cheaper prices, would then appear in different computer networks, but not one that is overseeing all medication usage. This is particularly an issue for seniors who take significant amounts of prescriptions drugs.

It’s important that the compatibility of all the drugs be checked, no matter where purchased, said N. Lee Rucker, a senior strategic policy advisor at the AARP’s Public Policy Institute. Phone and tablet apps and computer programs that can review all drugs will become increasingly important as people shop for drugs in multiple places, according to Rucker.   

Total Part D spending by the government is scheduled to rise significantly as the Affordable Care Act (ACA) narrows the “donut hole,” which is the gap in drug coverage that beneficiaries fall into when they have reached their initial coverage limit but before they have reached their catastrophic-coverage threshold, when coverage kicks back in.

When beneficiaries are in the donut hole, they are responsible for the bulk of their medication costs. For 2013, beneficiaries in the donut hole will pay 47.5 percent of the cost for brand-name drugs and 79 percent of the cost for generics, until they have spent $4,750. At that point, full coverage kicks in again. For 2014, that threshold drops to $4,550, and the cost of generics becomes cheaper, as the consumer’s share will drop to 72 percent.

The donut hole will keep narrowing until 2020, when consumers will pay just 25 percent for both brand-name drugs and generic medications while they are in the donut hole.

There is other good news for 2014, too: the standard Part D deductible—the amount a beneficiary pays before drug coverage begins—will be $310, down from $325 this year.

Beneficiaries with large medication bills are a small part of the Medicare population, but their spending is a significant share of total Part D outlays. “In 2010, about 9 percent of Part D enrollees (about 2.3 million enrollees) had spending high enough to reach the catastrophic phase of the Part D benefit, meaning they had at least $6,440 in total Part D drug costs in that year,” according to the Kaiser Family Foundation. “Spending by these beneficiaries represented 44 percent of total Part D drug spending.”

In addition to the lower premiums scheduled for 2014, the Centers for Medicare & Medicaid Services (CMS) is now offering new protections for people who have been charged for prescriptions they either didn’t order or didn’t need, yet received because of automatic delivery by some drug plans. “CMS proposes to require Part D plan pharmacies to obtain enrollee consent prior to each delivery, unless the enrollee personally requests the refill,” the government announced. “This proposal is in response to complaints from beneficiaries who have received and been charged for unnecessary and unwanted prescriptions because of ‘auto-ship’ services.”

The tally for drug spending under Part D this year is expected to reach $79 billion, which covers drugs taken at home; and $20 billion for drugs paid under Part B, which includes drugs administered in a doctor’s office or in outpatient hospital settings.

For high-spending beneficiaries, Medicare offers special counseling programs, known as medication therapy management. This might include classes on medication usage, including interactions among drugs; the effect of various foods on drugs; and the use of devices, such as pillboxes that make a noise if they haven’t been opened during the day. Nearly 2.6 million people enrolled in medication therapy programs in 2010.

Because of the savings expected in 2014 for Part D, “People enrolled in Medicare will see ‘a direct and positive impact on their pocket books’,” said Ron Pollack, according to a Bloomberg news story. Pollack is the executive director of Families USA, a health-consumer advocacy group in Washington.

“In the long term, it means that some of the dire concerns about the future sustainability of Medicare are somewhat relieved, and that will probably reduce the inclination to shift greater cost burdens on Medicare beneficiaries as part of future budget deliberations.”

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