Medicare Part D: Strengths & Weaknesses

August 2007

Now that more than a year has passed since prescription drug coverage became available for Medicare beneficiaries, policymakers are examining the successes and challenges of Part D coverage. One clear success is that Part D provided both necessary medication and financial savings for seniors; today nearly 40 million Medicare enrollees have some form of prescription drug coverage, with 23.9 million enrolled in Medicare Part D plans.1 As a result of this coverage, seniors save about $1,100 a year on prescription drug costs.2 These savings also helped to ensure that seniors can afford their prescriptions without rationing other portions of their income. But, despite the advantages of Part D coverage, many beneficiaries face continuing challenges as they try to maneuver their way around this benefit.

A Complex Program

While the authors of Medicare Part D can claim many successes, several challenges still lay ahead for those working to access its services. One of the chief complaints about the program is the overwhelming complexity involved with choosing a prescription drug plan. Nearly 1,900 prescription drug plans exist overall, and depending on an enrollee's geographic region, beneficiaries must evaluate 45 to 66 plans.3 With the wide variety of plans, beneficiaries often have great difficulty understanding what may or may not be covered as they work to identify a plan that best fits their personal needs. Each plan has differing designs, costs, premiums, co-payments, and processes for obtaining prescriptions.4 While proponents argue that beneficiaries prefer choice, the sheer magnitude of total plans and the intricacies of coverage options increase the complexity of the decision-making process.

Another concern for many seniors is the possibility of entering the coverage gap; also know as the donut hole. According to estimates, six percent of beneficiaries fall into the donut hole over the course of the year.5 This raises the question of whether seniors will restrict certain drug use upon entering the donut hole. HCFO grantee Bruce Stuart, Ph.D., is examining the extent to which discontinuities in coverage affect prescription drug use.

In response to the confusion surrounding enrollment in Part D plans, the Centers for Medicare & Medicaid Services (CMS) made extensive efforts to educate and inform seniors of their options. CMS used tools such as call centers and the internet to provide seniors with the resources they need.6 While the internet allows for frequent updating of information, this format for information dissemination has its own obstacles. Many seniors are not internet-savvy and therefore cannot access the information. In addition, seniors may not be able to anticipate all of their drug needs, and changes in formularies over time may lead to uncertainty regarding the appropriate plan. Currently, Bryan Dowd, Ph.D., is completing HCFO-funded research to provide timely lifetime drug cost information for both beneficiaries and policymakers. The research is aimed at helping both policymakers and seniors make informed decisions about the decision to purchase Part D coverage.

Vulnerable Populations

Medicare Part D creates unique challenges for those who qualify for both Medicare and Medicaid. These dual eligibles were required to begin receiving their prescription drugs under Medicare Part D, rather than continuing to be reimbursed for prescriptions under Medicaid. Many of the people who have dual eligibility also suffer from more chronic conditions. This population often has very specific prescription drug needs and falls into a lower socio-economic and educational strata than other beneficiaries. Moreover, individuals tend to have a higher percentage of cognitive disabilities.7 Dual eligibles have faced difficulties with the transition from Medicaid to Part D for their prescription coverage since Part D plans may have different formularies and coverage then what the person received under Medicaid.

Low income seniors faced other confusing choices resulting from access to subsidies. The Low Income Subsidy (LIS) is available to persons already enrolled in Qualified Medicare Beneficiaries (QMBs) and similar programs. In addition, other low income persons are eligible for the LIS, but efforts to identify and enroll these individuals have been administratively cumbersome and confusing for seniors.

Residents in nursing homes also faced obstacles with the implementation of Part D. Within nursing homes, residents have the ability to choose their own plan; yet, each separate prescription plan has the potential to restrict prescription choice through their formularies, prior authorizations, and other mandates.8 In addition, nursing facilities must keep track of each of the different formularies among plans and provide residents the prescriptions they require while trying to comply with insurance company requirements.9 Through controls such as prior authorization or step therapy, the plans may restrict the types of medicines a resident can receive or create a lengthy process for certain drug approval.10 Becky Briesacher, Ph.D., a HCFO grantee, is currently researching the role of Part D in nursing homes and its resulting effects on that population.

Drug Prices

The general assumption supporting Part D plans was that competition among private insurers would drive the price of prescriptions down; but instead, the prices continue to rise.11 Several independent studies have calculated the rate of increase in drug costs and found that prescription costs are still rising faster than the rate of inflation.12 Much of the debate surrounding the rising costs revolves around whether or not the government should have the ability to negotiate prescription prices with drug companies. Some feel that the government should have that power, similar to the negotiating leeway afforded to the Veteran's Administration, while others disagree and believe that negotiated prescription prices do not provide a better solution than the program currently in place.13

In the midst of discussions and differing opinions, it is imperative that research continue to study these issues more closely and provide information to assist policymakers in finding answers to the challenges and obstacles presented by programs such as Medicare Part D.

Current HCFO Research on Medicare Part D

HCFO grantee Becky Briesacher, Ph.D., at the University of Massachusetts Medical School is currently examining the impact of Medicare Part D and its effects on dual eligibles. Briesacher is evaluating the effect of transferring prescription coverage from Medicaid to Medicare Part D for beneficiaries residing in nursing homes. The study also aims to measure rates of enrollment for nursing home residents in Part D, the impact of Part D on utilization patterns of prescription drugs, identify the prescription drugs most utilized under the program, and determine whether Part D has an impact on hospitalization rates. This project will help inform both local and federal officials and policymakers of the needs of nursing home residents who are currently using Medicare Part D for their prescription drugs. The study will also provide information on the overall impact of Part D in terms of utilization and quality of care.

HCFO has also funded other projects examining the effects of Medicare Part D and its utilization by older adults. One grantee, Sebastian Schneeweiss, M.D., is studying the effects of prescription drug use among people who had no drug coverage prior to the passage of Medicare Part D. The goal of this study is to provide a sound evaluation of Medicare's drug coverage to help inform the debate on ways to improve the program. Another HCFO grantee, Bryan Dowd, Ph.D., of the University of Minnesota School of Public Health, is completing research exploring whether Medicare Part D is a cost-effective option for beneficiaries who are relatively healthy. This study aims to provide seniors and policymakers information on the effectiveness of Medicare Part D.

HCFO Funded Research Relevant to Medicare Part D

Title: Impact of MMA Part D on Medicare Residents in Nursing Homes
Institution: University of Massachusetts Medical School
Grant Duration: January, 2007 - June, 2008
Principal Investigator: Becky Briesacher, Ph.D.

The applicants will evaluate the impact of the transfer of prescription drug coverage for dual eligibles (Medicare and Medicaid) living in nursing homes from Medicaid to Medicare Part D, as required by the MMA. In particular, they will: 1) measure the rates of enrollment into Medicare Part D for nursing home residents from 2005 to 2007; 2) assess the impact of Medicare Part D on overall prescription drug utilization patterns; 3) identify the major drug classes most affected by the program, including an examination of benzodiazepines and their exclusion from Part D coverage; and 4) determine the impact of Medicare Part D on overall rates of hospitalizations and falls, as indicators of quality care. The objective of the project is to better inform state and federal policymakers about the impact of Medicare Part D on drug utilization, as well as quality (measured by hospitalizations and falls).

Title: Changes in Drug Utilization for Seniors without Prior Prescription Drug Insurance
Institution: Brigham & Women's Hospital, Inc.
Grant Duration: November, 2006 - October, 2007
Principal Investigator: Sebastian Schneeweiss, M.D., Sc.D.

The researchers will assess changes in prescription drug use among elderly patients who had no prescription drug coverage prior to Medicare Part D. In particular, they will examine 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 is to influence discussion of how to improve Medicare drug coverage after the first year of its existence by providing timely methodologically rigorous evidence.

Title: Study on Informed Choice of Drug Coverage for Medicare Beneficiaries
Institution: University of Minnesota School of Public Health
Grant Duration: August, 2006 - July, 2007
Principal Investigator: Bryan E. Dowd, Ph.D.

Is Medicare Part D drug benefit a cost-effective option for healthy Medicare beneficiaries? The researchers hypothesize that seniors use current expenditures to estimate their need for coverage, which could result in a significant underestimate of the true risk. The objective of the project is to evaluate the cost-effectiveness of Medicare Part D for healthy beneficiaries and provide accurate lifetime drug cost information to help seniors make more informed decisions regarding Medicare Part D coverage.

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

Are Medicare beneficiaries likely to react differently when faced with the donut-hole "gap" in Medicare Part D than they would with actuarially equivalent continuous coverage? The researchers propose to challenge the hypothesis that actuarially equivalent, but structurally different cost sharing arrangements have similar impacts on beneficiaries' prescription drug utilization patterns. The researchers would also determine whether the relationship between use and benefit structure is sensitive to the overall generosity of insurance coverage. This project builds 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 would extend the understanding of how Medicare beneficiaries react to benefit structure, but would also 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 is to provide policymakers with a better understanding of how Medicare beneficiaries behave when faced with alternative cost-sharing structures.  

Title: The Role of Benefit Design in Enrollment, Use and Spending in State Prescription Drug Assistance Programs for Seniors - Lessons for Medicare
Institution: Brandeis University
Grant Duration: March, 2004 - August, 2006
Principal Investigator: Cindy Parks Thomas, Ph.D.

How does the design of a prescription drug benefit for seniors - either under Medicare or in individual states - affect drug use and costs? Building on evaluations currently underway for CMS, the researchers compared the SeniorCare prescription drug assistance programs in Illinois and Wisconsin to assess the impact of different key features, including enrollment approach and fees, and the use of a PBM or not. The scope of the CMS evaluations of the Medicaid 1115 waivers in each state does not permit direct comparison of the programs to assess the impact of the different design features. The researchers: 1) compared enrollment selection between the two programs; 2) compared utilization and spending patterns for enrollees; 3) assessed the impact of Illinois' 'soft cap' and Wisconsin's deductible on drug use and spending; and 4) compared patterns of use for specific diseases (COPD/asthma, congestive heart failure, diabetes, and arthritis) and drug therapeutic classes in each of the states.

Title: State Experience with Pharmaceutical Assistance Programs
Institution: Georgetown University
Grant Duration: January 2004 - November 2005
Principal Investigator: Jack F. Hoadley, Ph.D.

What has been the state experience in implementing pharmaceutical assistance programs serving Medicare beneficiaries? Through a series of case studies the researchers will gather information on issues such as communicating with enrollees, administering eligibility and cost sharing, and managing drug costs. The objective of the project is to reveal best practices and lessons learned that are useful to policymakers considering a Medicare prescription drug benefit and those in states implementing or modifying pharmaceutical assistance programs.

1 Medicare Fact Sheet, The Henry J. Kaiser Family Foundation, June 2007.
2 Ignagni, K. "Medicare Part D: A Successful Public-Private Partnership," The Commonwealth Fund, July 2006.
3 "The Medicare Prescription Drug Benefit," Medicare Fact Sheet, The Henry J. Kaiser Family Foundation, June 2007.
4 Summer, L et al. "Improving the Medicare Part D Program for the Most Vulnerable Beneficiaries," Volume 60, The Commonwealth Fund, May 2007.
5 "Medicare Part D: The First Year," IMS Special Report, IMS Health, 2007.,2764,6599,00.html.
6 Kocot, S. L. Low-Income Subsidy Issues in the Medicare Prescription Drug Benefit, Special Committee on Aging, United States Senate, January 31, 2007.
7 Summer, L et al. "Improving the Medicare Part D Program for the Most Vulnerable Beneficiaries," Volume 60, The Commonwealth Fund, May 2007.
8 Lorber, D. "Coverage and Use of Prescription Drugs in Nursing Homes: Implications for the Medicare Modernization Act," In the Literature, The Commonwealth Fund, February 27, 2006.
9 Andrews, W. Notebook: Medicare In Nursing Homes, CBS News, May 9, 2006.
10 Ibid.
11 Medicare Drug Plan Prices Are Increasing Rapidly, Committee on Government Reform- Minority Staff, February 2006.
12 Medicare Part D Drug Prices Are Climbing Quickly, Families USA, April 2007.
13 Sipkoff, M. "Federally Negotiated Drug Prices Anticipated for Medicare Part D," Managed Care, December 2006.