Changes to and Opportunities for the Medicare Part D Prescription Drug Program

May 2010

On December 8, 2003, President Bush signed into law the Medicare Prescription Drug Improvement and Modernization Act of 2003 (Pub. L. 108-173). This landmark law provides seniors and individuals with disabilities with a prescription drug benefit and more choices in health plans as well as with expanded benefits under Medicare. While the program is widely considered a success, recent changes, including the release of prescription drug event (PDE) data and passage of the Patient Protection and Affordable Care Act, present new opportunities to evaluate the program and to modify the benefit design to improve quality, access, and affordability of prescription drug coverage for Medicare beneficiaries.


Implemented in January 2006, Medicare Part D provides outpatient prescription drug insurance to Medicare beneficiaries enrolled in traditional Medicare through private prescription drug plans and to Medicare Advantage beneficiaries through Medicare Advantage prescription drug plans. Part D uses market-based principles both to enhance beneficiaries’ choices in plans and to promote competition between plans to reduce costs. Private prescription drug plans compete with each other for beneficiaries and may bid below a benchmark premium set by the Centers for Medicare & Medicaid Services (CMS) to enroll low-income subsidy (LIS) beneficiaries, thus increasing market share.

Since its inception, Medicare Part D has provided approximately 60 percent of Medicare beneficiaries with access to outpatient prescription drugs.1 HCFO funded Sebastian Schneeweiss, M.D., Sc.D., of Brigham & Women’s Hospital, and colleagues to assess the changes in prescription drug use among elderly patients who had no prescription drug coverage before implementation of Part D.2 The researchers found that Part D coverage was associated with decreased out-of-pocket spending for prescription drugs and increased use of warfarin, statins, and clopidogrel in patients who enrolled in Part D in 2006. For more findings from the study, see the March 2009 findings brief at

Part D plans provide a standard benefit that includes a deductible, co-insurance, and a gap in coverage, referred to as the donut hole, or a similarly structured plan. The donut hole was designed to contain program costs and requires individuals to pay out-of-pocket for prescription drugs when total drug spending ranges between $2,830 and $6,440 annually. After spending exceeds the donut-hole threshold, beneficiaries qualify for catastrophic coverage. Some plans may offer limited coverage, such as a discount on generic drugs, during the donut hole; LIS beneficiaries are not subject to the donut hole. Recent qualitative research conducted by the Medicare Payment Advisory Commission (MedPAC) found that non-LIS beneficiaries who reached the donut hole and were subject to the full cost of prescription drugs were sensitive to the cost of drugs and used several methods, such as seeking drug samples, splitting pills, using mail order pharmacies, or discontinuing drugs, to minimize drug costs.3 In a study funded by HCFO, Bruce Stuart, Ph.D., University of Maryland at Baltimore, and colleagues examined whether Medicare beneficiaries were likely to react differently when faced with the donut hole than if they had actuarially equivalent continuous coverage. The researchers found that individuals experiencing a gap in coverage were more likely to spend less than those with continuous coverage and that the effect was strongly associated with the gap’s duration.

CMS Releases Medicare Part D Prescription Drug Event Data

Since implementation of prescription drug coverage, policymakers are still seeking to understand the successes and challenges of Medicare Part D. They are interested not only in possible improvements to the benefit but also in the market behavior of drug plans and how the choices made by beneficiaries may provide insight into potential impacts of health reform. In fall 2009, CMS released 37 data elements from the Part D PDE database to federal agencies, states, and external researchers for program evaluation, research, and quality improvement purposes.4 The PDE data make up a national claims database with information on every prescription filled and the following data elements:5

  • Beneficiary and payer identifiers
  • Date of service and payment by Medicare Part D
  • Pharmacy provider information
  • Drugs provided
  • Drug costs
  • Insurance and coverage status

The data may be linked to Medicare Parts A and B claims data, allowing researchers to conduct studies previously not possible, particularly studies related to drug treatment patterns, health outcomes, and adverse events.6 To ensure the protection of beneficiaries’ privacy and commercially sensitive information, certain elements of the data are encrypted, and external researchers have no access to plan identifiers or disaggregated drug cost data. 

In conjunction with the release of the PDE data, HCFO issued a special topic solicitation seeking research that would contribute to the Medicare Part D evidence base; it funded two projects. Cindy Thomas, Ph.D., Brandeis University, will assess two state Medicaid policies—co-payment assistance to reduce Part D beneficiary cost-sharing and beneficiary-centered assignment—and the impact of the policies on health outcomes, beneficiary switching among plans, continuity of drug treatment, and Medicare program costs.7 Jack Hoadley, Ph.D., Georgetown University, will examine the extent of generic drug use in Medicare’s stand-alone drug plans for three classes of drugs—cholesterol drugs, anti-depressants, and hypertension drugs—and whether plan, formulary, and program designs are associated with the use of generics.8

Future Changes to the Part D Benefit Design

Concerns over the affordability of prescription drugs, particularly during the donut hole, prompted discussion about the Part D benefit during the debate over health reform. In June 2009, President Obama and the pharmaceutical industry reached an accord in which the latter agreed to provide a discount on prescription drug spending to individuals in the donut hole and to reduce pharmaceutical industry-related costs by $80 billion over the next decade.9 Consequently, the Patient Protection and Affordable Care Act, signed into law on March 23, 2010, calls for the gradual closure of the donut hold by 2020 per the timeline below:10

  • 2010—Part D beneficiaries reaching the donut hole will receive a $250 rebate
  • 2011—Pharmaceutical manufacturers will provide a 50 percent discount on brand-name drugs filled during the donut hole, and, by 2020, the federal government will start phasing in subsidies for generic drugs filled during the donut hole in an amount up to 75 percent of the cost of the drugs
  • 2013—The federal government will start phasing in subsidies for brand-name drugs, covering 25 percent of the cost by 2020
  • 2014–2019—The catastrophic coverage threshold will be lowered

These important legislative changes to Medicare Part D may improve access to and affordability of the benefit to beneficiaries. The release of PDE data is an important step in evaluating the effectiveness of the Part D program and projecting the impact of health reform on the more than 25 million beneficiaries receiving Medicare Part D coverage. Policymakers are likely to find valuable information in the Medicare Part D studies funded by HCFO. Details on these and other HCFO-funded studies are available at

Title: Generic Substitution within a Class of Drugs for Medicare Part D Plans
PI: Jack Hoadley, Ph.D.
Institution: Georgetown University
Grant Period: Apr 2010 - March 2011

The researchers will examine the extent of generic drug use in Medicare’s stand alone drug plans for three classes of drugs: cholesterol drugs, antidepressants, and hypertension drugs. They will determine whether plan-level benefit design and formulary design characteristics and the program’s overall design are associated with the use of generics. Specifically, they will examine four research questions: 1) are shifts to generic alternatives within a drug class influenced by differences in benefit and formulary design; 2) does the impact of benefit and formulary design features differ between beneficiaries eligible for the Part D program’s low-income subsidy (LIS) and other, unsubsidized beneficiaries; 3) do effects vary by drug and drug class; and 4) does the coverage gap design feature of the Part D program affect the use of generics? The objective of this project is to provide policymakers with a better understanding of the forces that influence generic utilization and the potential opportunities to create health care cost savings within the Part D program.

Title: Impact of State Policies Supporting Medicare Part D for the Dually Eligible
PI: Cindy Thomas, Ph.D.
Institution: Brandeis University
Grant Period: May 2010 - April 2012

The researchers will assess two state Medicaid policies - co-payment assistance to reduce cost sharing and beneficiary centered assignment. They will examine the impact of these policies for the dually eligible population on health outcomes (health care utilization and sentinel events), beneficiary switching among plans, continuity of drug treatment, and Medicare program costs. The researchers will compare beneficiaries in six states that provide full co-payment assistance to those states without such assistance. They will also compare beneficiaries in Maine, the only state with CMS-approved beneficiary centered assignment for dually eligible beneficiaries, to similar beneficiaries in other states. The objective of this project is to inform the Medicare program and state policymakers on the impact of the Part D benefit on dually eligible beneficiaries.

Title: Measuring the Costs and Benefits of Medicare Private Fee-for-Service
PI: Steven Pizer, Ph.D.
Institution: Boston VA Research Institute, Inc.
Grant Period: February 2008 - January 2010

The researchers will explore how private fee-for-service (PFFS) plans and beneficiary choices are affected by Medicare payment policy. PFFS plans cover services from any Medicare-qualified provider and pay physicians by fee-for-service. The researchers will measure the effects of payment changes on PFFS plan decisions regarding market entry, benefit design, and premiums and then analyze the effects of changes in benefits and premiums on enrollment. They will address the following research questions: (1) how would plan availability be affected if payment rates were reduced; (2) how would premiums and benefits be affected by changes in payment rates; and (3) how does the value to beneficiaries of the PFFS option compare to its cost to the taxpayers? The objective of the proposed project is to inform policymakers about the costs and benefits of paying private Medicare health insurance plans.

Title: Changes in Drug Utilization for Seniors without Prior Prescription Drug Insurance
PI: Sebastian Schneeweiss, M.D., Sc.D.
Institution: Brigham & Women’s Hospital
Grant Period: November 2006 - October 2007

The researchers assessed changes in prescription drug use among elderly patients who had no prescription drug coverage prior to Medicare Part D. In particular, they examined the following research questions: 1) How fast is the uptake of Medicare Part D among seniors without prior insurance? Is there an increase in preventive drug use (more new users, better adherence)? 2) Is there switching to more effective or more expensive drugs? 3) Is there a reduction in discontinuation of drugs for chronic conditions? 4) To what extent does total drug spending per patient change? 5) What proportion of spending is shifted from patients to Medicare? 6) Are prescribing changes clustered within physicians, pharmacies, or chains? 7) How do prescribing patterns change when some patients exhaust their initial coverage but have not yet reached the catastrophic coverage (in the “doughnut hole”)? The objective of the study was to influence discussion of how to improve Medicare drug coverage after the first year of its existence by providing timely methodologically rigorous evidence.

Title: Medicare Beneficiaries’ Response to Coverage Gaps Versus Actuarially Equivalent Continuous Coverage for Prescription Drugs
PI: Bruce Stuart, Ph.D.
Institution: University of Maryland at Baltimore
Grant Period: July 2006 - June 2007

Are Medicare beneficiaries likely to react differently when faced with the doughnut-hole “gap” in Medicare Part D than they would with actuarially equivalent continuous coverage? The researchers challenged the hypothesis that actuarially equivalent, but structurally different cost-sharing arrangements have similar impacts on beneficiaries' prescription drug utilization patterns. They examined whether the relationship between use and benefit structure is sensitive to the overall generosity of insurance coverage. This project built on Stuart's previous HCFO grant assessing the effects of gaps in drug coverage for Medicare beneficiaries with common chronic diseases. That study found that gaps in drug coverage lead to reduced utilization rates and that the effects are magnified for those with common chronic diseases such as diabetes, COPD, and mental illness. This project extended the understanding of how Medicare beneficiaries react to benefit structure, but will be useful to private payers as they search for a cost-sharing formula that contains costs while minimizing disruption in medication regimens. The objective of this project was to provide policymakers with a better understanding of how Medicare beneficiaries behave when faced with alternative cost-sharing structures.

1 Report to the Congress: Medicare Payment Policy. Washington, D.C.: Medicare Payment Advisory Commission, March 2010.
4 “Fact Sheet: Final Medicare Part D Data Regulation (CMS-4119-F).” Centers for Medicare & Medicaid Services, May 22, 2008. Also see
5 Greenwald L.M. “Medicare Part D Data: Major Changes on the Horizon,” Medical Care, Vol. 45, No. 10, Suppl 2, October 2007, pp. S9-12.
6 “Fact Sheet: Final Medicare Part D Data Regulation (CMS-4119-F).” Centers for Medicare & Medicaid Services, May 22, 2008. Also see
7 Report to the Congress: Medicare Payment Policy. Washington, D.C.: Medicare Payment Advisory Commission, March 2010.
9 “Remarks by the President on Medicare Part D ‘Doughnut Hole’ and AARP Endorsement.” Washington, D.C.: Office of the Press Secretary, The White House, June 22, 2009.
10 “Summary of New Health Reform Law,” Focus on Health Reform. Kaiser Family Foundation, March 26, 2010.