Tuesday, December 04, 2012

Does the CBO now support co-pay cards for Medicare Part D?

Last week, the Congressional Budget Office (CBO) released an important new memo: Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Services.

After reviewing the evidence, the CBO concluded that prescription drugs can reduce overall healthcare costs—at least in Medicare. The CBO can now officially account for prescription drugs’ beneficial effects in budget forecasts. For example, the cost of closing the Medicare Part D coverage gap just dropped by 41%!

But by supporting the economic benefits of prescription drugs, the CBO may have inadvertently provided an argument to reverse the long-standing federal program ban on co-pay offset programs, a.k.a., co-pay cards, co-pay coupons. Two-thirds of Medicare Part D prescription drug plans (PDPs) have five-tier designs with high out-of-pocket co-insurance. Does the CBO’s change of heart mean co-pay offset programs should be encouraged, not banned, from federal programs?

Read on and let me know if you agree.


In 2010, Medicare outpatient drug spending was $59.4 billion, or 23% of total U.S. retail prescription drug expenditures. (In the expenditure data, "retail" includes retail, mail, and specialty pharmacies.) Medicare was also the fastest-growing payer. Here’s a chart that first appeared in Healthcare Reform Hits U.S. Drug Spending in 2010:

Note that these spending figures combine Part D drug expenditures (88% of Medicare drug expenditures) with non-part D drug expenditures such as Medicare Advantage drugs and some Part B spending in traditional Medicare fee-for-service.

The CBO synthesized results from a small number of studies, and then scaled all changes in medical use with number of prescriptions filled to avoid price effects, such as brand-to-generic substitution.

The official bottom line: A 1.0% increase in the number of prescriptions filled by Medicare beneficiaries would cause Medicare’s spending on medical services to fall by roughly 0.2%. In other words, the government is not afraid of prescription growth, either due to increased utilization or higher adherence.


Healthcare reform’s changes to Medicare Part D provide a real-world case study of CBO’s new mindset.

The PPACA closes the Medicare Part D coverage gap. Over the 2013–2022 period, CBO now estimates that these changes will:
  • Increase federal spending for Medicare Part D by $86 billion (relative to what would have been spent without healthcare reform)
  • Reduce federal spending for medical services under Medicare by $35 billion (due to the beneficial increase in prescription utilization
Ergo, the net increase in federal spending is projected to be $51 billion (= $86 - $35) from 2013 to 2022.


The CBO’s new prescription-friendly mindset should encourage programs and policies that increase prescriptions, either by increasing utilization or adherence.

Co-pay offset programs are a controversial way to improve adherence. Payers and pharmacy benefit managers (PBMs) argue that “copay programs induce consumers to choose higher-cost brands (despite higher copays) over lower-cost competitors (despite lower copays).” See PBMs Launch a New Attack on Copay Cards. Others counter that co-pay cards don't increase utilization of higher-cost brand-name drugs and don't reduce generic usage, but do increase adherence. See A Defense of Co-Pay Cards.

This debate is very important for Medicare Part D, despite the shrinking coverage gap. According to Avalere Health’s analysis of 2013 Medicare Part D prescription drug plans (PDPs):
  • In 2013, over two-thirds of Part D plans will have five or more tiers, up from 58 percent in 2012 and 41 percent in 2011. The overwhelming majority of PDPs (90 percent) will use specialty tiers.
  • Part D plans are increasingly using percentage cost sharing instead of fixed dollar copayments, increasing the variability and amount of patients' out-of-pocket costs.
  • In 2013, all five-tier plans use cost sharing on the fifth tier, almost half use cost sharing on tier four, and one-third of plans use percent cost sharing on tier three (the preferred brand tier).
For a specialty drug, the average monthly cost per prescription is usually $2,000 to $3,000, so cost sharing can create an enormous financial burden for seniors. To help patients afford these out-of-pocket expenses, pharmaceutical manufacturers offer co-pay offset programs that cover the patient’s portion. Per A New Reality Check on Co- Pay Offset Programs, nearly 70% of biological drugs have co-pay programs, compared with only 44% of traditional brand-name drugs.

You may recall the CBO’s predictions of fiscal disaster due to the country’s rising healthcare costs. Are manufacturers' co-pay programs part of the solution for patients...and for Medicare?


  1. Lauri Mitchell, at Amundsen,  wrote an article in November's PharmExcec that quantifies average OOP for various specialty products in Part D - across all stages of coverage (pre-gap, gap and catastrophic).   The data also shows that a very high percentage of new patient starts end up abandoning their claims when exposed to high cost-sharing.
    http://www.pharmexec.com/pharmexec/Article/Who-Pays-for-Specialty-Medicines/ArticleStandard/Article/detail/796497This analysis was sponsored by PhRMA who has been trying to highlight the quandry of patients in Part D who are Standard Eligible.

  2. And one more... There was a great editorial in Sunday's times about the lack of transparency for specialty coverage... in this case for Revlimid.. and a patient not knowing what it will cost under alternative insurance options. Deductibles and co-pays could range from near nothing to $1000  a month.

  3. http://www.nytimes.com/2012/12/02/opinion/sunday/a-health-insurance-detective-story.html?_r=0

  4. Adam,
    If Pharma used copay cards in a benevolent way to make available life saving specialty medications I would agree however they can't help themselves and use it to maintain market share of brand drugs in therapeutic classes where multiple generics are available. They play their sunday afternoon playbook by controlling doctors and driving patients to expensive brands in lieu of more cost effective generics. We also need to remember compliance is tied into a patients ability to not only pay a copay but also a premium.

  5. Thank you for another thought-provoking blog post. One question, though
    -- while I understand the connection between improved medication
    compliance and decreased medical costs, I don't see where the CBO has really
    opened the door to the possibility of allowing copay coupons or offset
    programs. Could you explain your thinking just a bit? From where I sit,
    copay cards (specifically the Lipitor one) can have a significant negative
    impact on commercial payers.

  6. I'm not really thinking  about co-pay programs that affect tier 2/3 utilization, such as the Lipitor example. 
    As I note in the article, the growth in 4/5-tier PDPs with co-insurance is quite astonishing. Most of the medications on these higher tiers are expensive specialty drugs without generic alternatives. It is well established that higher out-of-pocket expenses decrease Rx utilization for specialty drugs (in non-Medicare plans). Thus, CBO's logic could apply to a policy that increased utilization of specialty prescriptions.

    I'm not expecting anything to happen soon. I'm just pointing out that CBO has taken the first step down a road that could allow at least *some* co-pay programs to operate within a Federal program.

  7. I am not sure if it affects the point of the article but the slices of the pie in the pie chart in this article are mixing apple pie and cherry pie on one pie plate. 

    All slices of the pie except Medicare are actually "sources of payment for retail sale of prescription drugs," the title of the slide. But the Medicare Part D money is not the source of payment for retail sale of prescription drugs. That money

    actually flows to insurance companies and belongs instead on a pie plate with the premiums I pay and my employer pays and ???? (not sure what all the slices are). 

  8. I disagree. Part D is the payer from the perspective of the National Health Expenditures data. The use of an intermediary (PBM, PBA, state Medicaid program, etc.) doesn't effect the payer definition. See my January 2012 article and the sources for more details.

  9. OK, so I guess you are saying the National Health Expenditures data is not logical, which is not surprising. (All the MedPAC data is similary illogical.)  If the "use of an intermedicary" doesn't effect the payer definition, why isn't there a big slice for pie for large employers that self insure?

  10. Employer-sponsored insurance is in the "private health insurance" category, to distinguish it from public funds or consumer out-of-pocket. 

  11. I'm sorry if I am not making my point more clearly.  I am questioning the mixing of apples and oranges in the pie chart.  It makes no sense to show the ultimate source of the Medicare funds but not show the source of the ESI, the employer, particularlay the employer that self insures. Either show the original source of the funds (Medicare, self-insured employers) or the payer of the drug stores (insurance companies, SPAPs) but do not mix them up the way you do

  12. Just adding to Adam's response. Part D's premiums don't come close to covering Part D's costs. About 80 percent comes from general revenues, and a good part from clawbacks: http://www.kff.org/medicare/upload/7305_03.pdf

  13. I wasn't commenting on the beneficiary/government cost split, just the inconsistency in the visual.

    But since you brought it up, just as with Medicare Part B, 25% of Part D costs are supposed to come

    from the beneficiary and 75% from the general fund of the United States Treasury.  It must get driven closer to 20%/80% because about 15% of Medicare beneficiaries get their Part D totally free (up to the value of the national index) and get nominal co-pays even in the donut hole. Under 1% of beneficiaries get catastrophic coverage, which might also drive up the ratio, although I would think that the Medicare trustees would take those known costs into account when they figure the 75/25 split.