The Medicare Part D standard benefit has long represented a colossal gap in the U.S. healthcare system for patients trying to afford branded medications. The Part D standard benefit was designed to support $100-per-month brands such as Lipitor, but it has been as helpful as a lead parachute for patients trying to afford modern-day brands.
The Inflation Reduction Act (IRA) includes several provisions meant to address this problem with the standard benefit, including a cap on annual pharmacy spend and the ability to “smooth” pharmacy-drug spend over the benefit year through the Medicare Prescription Payment Plan (MPPP). While these changes stand to create more affordable access for patients, they also present an exciting opportunity for the pharma industry to change affordability perceptions and improve product fulfillment in an insurance channel that has historically created severe affordability barriers for standard eligible patients. The potential impact can be substantial for many brands; however, to realize the benefit of the new features, pharma companies also need to prepare for their inherent challenges and uncertainties.
Affordability challenges in Medicare Part D
Prior to the implementation of the IRA’s standard benefit design updates, the Part D standard benefit has worked like this: patients must pay through a deductible, a coverage phase (approximately 25%-30% coinsurance) and a coverage-gap phase (25% coinsurance) before reaching the catastrophic phase of coverage. Despite entering the catastrophic phase, patients were still responsible for 5% of the total drug cost. This 5%, even after factoring in all the cost-sharing during the initial coverage phases, could pose a significant financial burden for patients relying on costly specialty medications. To make matters worse, pharmaceutical manufacturers aren’t permitted to offer co-pay support to Part D patients due to the anti-kickback statute. As a result, many patients can’t afford the cost-sharing requirements for their Part D prescriptions and don’t fill their prescribed medications.
Furthermore, over time, we’ve seen that providers will not consider high-cost pharmacy-benefit brands for their Medicare patients. Instead, they might explore alternatives, potentially favoring those covered by Part B or even generic medications. Interestingly, low-income patients are generally able to afford branded medications due to the low-income-subsidy (LIS) program, which keeps monthly co-pays around or below $10 for most qualified patients. The low co-pays for LIS patients lead to high fulfillment and utilization, while the high cost-sharing for standard eligible patients leads to low fulfillment and utilization. This results in an LIS population that represents high proportion of Part D utilization for many specialty brands (often higher than 65%) despite only representing around 27% of all lives in Part D. Thus, reducing patient cost sharing for standard eligible patients could unlock access to branded medications for a large population who are unable to afford these medications today.
What’s new: Capping out-of-pocket costs and a patient payment plan
The changes begin in 2024 when the patient out-of-pocket (OOP) will be eliminated in the catastrophic phase, capping patient OOP at around $3,200 per year. As of January 2024, the Part D standard benefit has already been updated to remove the 5% patient coinsurance in the catastrophic phase. This effectively puts an approximate $3,300 annual cap on total patient spending on Part D drugs, dramatically reducing the overall patient contribution for expensive therapies. For example, a patient taking Pomalyst in 2023 could be responsible for as much as $14,900 in addition to the expenses associated with any other medications they may be prescribed. In 2024, this patient’s total pharmacy spend will be reduced to $3,300, representing more than $11,000 in savings. While this is a substantial improvement, $3,300 can still be an unfeasible expense for many patients, especially when most, if not all, of that $3,300 is required to fill their first script.
In January 2025, the Part D standard benefit will go through a more substantial redesign, where the coverage gap phase is completely removed and the annual cap on total patient spending on Part D drugs is reduced to $2,000.
The MPPP will also become available to patients starting in 2025. Patients can opt into the MPPP program, through which they will be charged $0 at point of sale (POS). Instead of patients needing to pay their OOP at the pharmacy, they will be billed retrospectively in monthly installments. This option for patients to smooth their co-pays will be a crucial component of the affordability improvements to the Part D standard benefits. Without it, we believe the $2,000 cap on patient spending could still be an insurmountable expense for a large portion of patients who are asked to pay significant cost sharing, if not the full $2,000, on their first script of a branded medicine.
The MPPP will allow patients to avoid that one-time exorbitant monthly expense on their first script; however, several complications and shortcomings still need careful consideration and planning.
The MPPP will allow patients to smooth their copays over the calendar year, but the monthly OOP calculation may be confusing. It will be important to understand how patients will respond in different scenarios. In the figure, we see how three examples of how the monthly patient payment calculations could vary.
- Scenario 1: A patient on several medications with $2,000 cost in January. A patient who is on multiple medications for T2 diabetes, COPD and heart failure with a $2,000 total OOP in Jan, meeting the new OOP cap. Under the MPPP, this patient would therefore pay $166.67 per month throughout the calendar year.
- Scenario 2: A patient starts with one medication and then adds on another in June. A patient with T2 diabetes who only incurs about $10 monthly OOP cost. However, in June, the patient is diagnosed with chronic lymphocytic leukemia and now experiences an expense that meets the remaining annual cap ($1,940). Under the MPPP, the OOP amount would be smoothed through the rest of the calendar year at $323.33 per month.
- Scenario 3: A patient with well-controlled chronic conditions. A patient whose chronic conditions (T2 diabetes and Afib) are well controlled incurs a $55 monthly OOP. Under the MPPP, the monthly maximum cap calculation updates each month to include newly incurred OOP costs in that month; thus the new monthly billed amounts fluctuates significantly.
FIGURE: OOP payment under the Medicare Prescription Payment Plan
Preparing for the MPPP’s opportunities and challenges
The MPPP, along with the other affordability improvements, is great news for Part D patients and represents an opportunity for the manufacturers of branded medications to drive potentially significant growth. Today, a large number of Part D patients are either abandoning therapy, being routed through patient assistance programs (PAPs) or not being prescribed branded treatment at all due to negative access perceptions among providers. In 2025, changes to the Part D will provide patients more affordable access to innovative medicines, and accordingly pharma will face both potential upsides and challenges.
- Improving patient fulfillment rates. The MPPP, in conjunction with the $2,000 annual cap, should improve the fulfillment rates amongst non-LIS Part D patients, which are historically extremely low for specialty medications and other more expensive brands. Patients who opt in to the MPPP program will face substantially reduced financial burden on their initial script. For example, many Pomalyst patients starting on therapy in January 2023 could have been required to pay more than $3,000 to fill their first script. In contrast, Pomalyst patients starting therapy January 2025 will be required to pay less than $200 in the first month of treatment if they opt into the MPPP, greatly improving the likelihood that they’ll fill that script.
- Leveling the playing field with medical benefit competitors. Reducing patient cost burden in Part D will create a more level playing field for pharmacy benefit drugs in markets where Part B-covered treatments are available. Prior to IRA implementation, Part B medications were typically more affordable options in the eyes of providers and patients due to supplemental benefits that cover cost sharing for Part B medications.
- Improving overall provider access perceptions. Patient cost sharing in Part D can drive negative overall access perceptions from providers, especially for providers with practices consisting of a high Medicare population. Prescribing decisions may be influenced by the negative access perceptions driven by high Part D costs. These negative perceptions can spill into other insurance channels. Improvements in patient affordability could improve these perceptions over time.
- Reducing utilization of PAPs. For many standard eligible Part D patients, manufacturer PAPs are the only realistic way to afford their branded drugs. The changes will reduce the need for these programs for many, thereby transitioning free product to paid prescriptions for many patients.
While the MPPP represents a substantial opportunity, pharma needs to overcome several challenges and uncertainties to realize its full potential—particularly MPPP components that could create confusion for patients and perplex the patient experience.
- Patients will need to opt in to the MPPP. Patients will be given this option both during open enrollment and throughout the benefit year. It is not clear how many Part D patients will participate in this program. Further CMS guidance is expected in early 2024 around exactly how patients will sign up, what tools CMS will provide to patients and the information payers and pharmacies will be required to provide (e.g., requirements related to Part D enrollee outreach, requirements around patient requests for information on real-time POS election, etc.).
- Patients will pay $0 at POS and then are billed retrospectively. Patients will pay $0 at the POS for their Part D-covered medications; however, they will be billed retrospectively by their insurer. Similar to the off-putting experience of receiving delayed, unexpected medical bills, a “surprise” medication bill could leave the patient with negative feelings. Moreover, co-pay surprises or uncertainty may lead to lower rates of persistence or a reluctance to fill the initial script.
- The OOP smoothing calculation isn’t straightforward. There are two separate calculations for determining patients’ monthly payments: one calculation to determine the first monthly payment and a separate calculation to determine all subsequent monthly payments. This can lead to fluctuating monthly payment amounts that are difficult to understand or predict. Patients who are retired and relying on fixed incomes may find unexpected bills particularly burdensome. We provided a few examples of how these patient payment calculations could play out in the figure, but we encourage readers to view the calculations in section 30 of the MPPP Part 1 guidance to see how complicated they are.
- Guidance regarding missed payments is incomplete. Patients will have certain grace periods for missed payments, after which plans can remove the patients from the program and potentially render them ineligible for participating in future years. Yet major questions remain around how that unpaid balance will be accounted for. Will patients’ unpaid OOP be forgiven? If so, will payers or CMS take on that financial loss? If not, who will be responsible for collecting payment from patients at that point? How will that payment be collected? CMS will provide additional guidance in early 2024 regarding pharmacy payment obligations and claims processing, how participant disputes will be handled and procedures for termination of election, reinstatement and preclusion, among other topics.
Four ways pharma can mitigate risk and capitalize on opportunities
Pharma manufacturers need to act now to pull through this opportunity for more Part D patients to access their innovative medicines and to mitigate the potential negative patient experiences. If the industry fails to act, they will likely shoulder the negative reactions that will ensue. Here are some steps manufacturers should take to fully realize the potential offered by the MPPP and OOP cap in Part D:
- Quantify the potential opportunity for patients and for your brand. A variety of analytic and research methods should be considered to estimate the potential impact. Companies should answer foundational business questions such as:
- Which brands and segments of patients could benefit most from the OOP caps and the MPPP?
- What portion of non-LIS Part D patients will participate in the MPPP?
- What is the range of impact these changes could have on patient abandonment, patient adherence and provider perceptions?
- How many patients could move off of PAPs due to these changes?
- Find the patients who will benefit from the MPPP. Pharma will need to identify the patients and providers who will benefit the most from these changes. Finding these patients won’t be easy, because they are not filling branded medications today and are thus not clearly represented in traditional data sets. Furthermore, most Medicare patients don’t need a branded medication and therefore won’t be impacted much by these changes. A more sophisticated approach will be required to determine where the right patients can be found.
- Develop a strategic plan for educating patients and their caregivers. CMS, plans, pharmacies and other stakeholders will play a role in informing and educating patients and HCPs about these changes and what they mean for patients. However, it is manufacturers who have the most incentive to drive adoption. Early data from KFF notes that only 25% of older adults (ages 65+) are aware of the new caps on Part D OOP. While this may not represent the best metric given that the law impacts <5% of seniors, it’s an early indicator that there is plenty of room for improvement for educating patients and caregivers about the benefits coming their way.
- Reevaluate your patient assistance program. Now that non-LIS Part D patients have more affordable access to their drugs, PAPs that offer free drug eligibility to non-LIS Part D patients may want to reevaluate which patient cohorts are in most need of free drugs in the future.
The benefit design improvements coming to Part D over the next 12 months are an overdue opportunity for patients to access innovative medicines that were previously unaffordable. But the transition may not be smooth, as the MPPP design has the potential to create confusion and unpleasant co-pay surprises for patients. Brands need to begin planning now to be prepared and coordinated in their efforts to ensure patients and caregivers have the information and support needed to navigate through these changes. If not, one of the few opportunities presented by the IRA will slip through their fingers.
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