BLOG: The ABCDs of Medicare Drug Coverage

The Medicare benefit is divided into four parts, each providing a unique drug benefit. Together, the four parts provide medication coverage – from oral medications taken at home to IV treatments given in a physician’s office to all medication provided during a hospital stay. Of course, many coverage details are in a constant state of flux, affecting exactly how coverage is provided.

This article describes each part of Medicare with key coverage details and outlines how pharmaceutical manufacturers need to navigate each part of the ABDCs of Medicare to assure access and utilization for Medicare beneficiaries.

Medicare Part A

The ABDCs of Medicare drug coverage begin with Medicare Part A, which provides drug benefits during an inpatient stay. Drugs used during an inpatient stay in a hospital or skilled nursing facility (SNF) (subacute stay) or during hospice enrollment are paid for by the facility or program from the capitated funds received from payers. As a result, drug usage is controlled by these facility operators rather than traditional insurers.

The principal decision-makers for hospitals start with clinical key opinion leaders (KOL), who base their selection on clinical outcomes, such as efficacy and adverse event (AE) reduction. From here, the decision typically moves to the hospital’s lead pharmacist, who can provide a more in-depth clinical outcome assessment against existing treatment options and financial considerations. The financial considerations are based on reductions in expenditures, such as length of stay, ICU days, ventilator days and readmission rates.

Also taken into consideration is the patient’s ability to have additional coverage from payers through carve-outs from the capitated payment, especially now in the form of New Technology Add-on Payment (NTAP) reimbursements. It is important to note that these NTAP payments do not currently exist for SNFs, as such NTAP meds started in hospitals have a difficult time continuing in SNFs. Formulary utilization is driven by individual prescribers, although this can be advanced greatly through inclusion within a clinical pathway.

For pharmaceutical companies, access and utilization is dependent on a compelling value proposition targeted at the right stakeholders. This value proposition requires both clinical benefits, ideally with inclusion in pathways and financial benefits with a NTAP, and reduced expenditures. The influencing of KOLs means reaching a decision through non-person promotion.

Medicare Part B

The original coverage for outpatient drugs by Medicare came under Part B through the Buy-and- Bill program to cover medications, such as oncology treatments administered by a physician in their office. Buy-and-Bill requires the physician to purchase the medication and then submit to Medicare for reimbursement at average sales price plus 4.3%. This arrangement provides both incentives and disincentives for physicians to utilize these medications. The incentives come from the positive margin, which is greatest for more expensive medications. The disincentive comes from potential cash flow and debt that could plague physicians, making this arrangement a financial loser. This is especially challenging for physicians who infrequently use this process, rather than larger, more sophisticated practices or those that are a part of health systems, which have the financial backing to easily manage this process. Especially with the incentives to utilize more expensive medications rather than those of highest value, Medicare has made efforts to eliminate the Buy-and-Bill arrangement for years, replacing it instead with a process in which Medicare reimburses for these medication directly (therefore, removing the physician and the physician’s ability to make a profit). While private payers have been more successful in this effort than Medicare, Medicare is likely to continue pushing for this change.

The site of care has also been another area of concern for Medicare here, in that there also exists incentive to use hospital-based sites rather than less expense sites, such as physician offices or home care. Again, Medicare has been pushing for site neutrality, meaning that all sites would be reimbursed equally rather than hospitals receiving a hefty premium.

The final incentive being examined is the use of Medicare Part B rather than Medicare Part D drugs. For an increasing number of diseases, treatments are available under both the Medicare Part B and D benefit. For providers, the economic incentives favor the use of Medicare Part B, although patients’ out-of-pocket (OOP) expenses may, in fact, be higher. This is due to the fact that unless a Medicare beneficiary has Medigap insurance, they are responsible for 20% of the cost, whereas under Medicare Part D their OOP for expensive medication is just 5%.

One last element to be aware of under the Medicare Part B drug benefit exists for patients in an SNF during a long-term stay. In this situation, Medicare Part B drugs are covered under the Medicare Part D program because Medicare does not recognize SNFs in the same manner they recognize physician offices. As a result, pharmaceutical manufacturers need to understand that their Medicare Part B drug will still require Part D coverage to ensure access to patients in an SNF.

Medicare Part C

Medicare Part C is the Medicare Advantage (MA) program. Since MA plans are responsible for the total cost of care, these forward-thinking plans not only cover drugs but promote them for agents that, despite their costs, are shown to reduce overall expenditures through improving health. Since MA plans are responsible for the total cost of care and have control over Medicare Part B, Medical and Part D pharmaceuticals, they have both the incentives and ability to ensure access to the most valuable drugs. As a result, articulation of value in terms of total cost of care against competitive treatments drives access and utilization.

Medicare Part D

The “D” in Medicare Part D, the prescription drug benefit, does not stand for “drugs” – it is simply the next letter in the Medicare benefit offering alphabet. Part D has been around for 15 years, starting in 2006. Medicare Part D can exist within MA plans or can be independently administered through Prescription Drug Plans (PDPs). Unlike MA plans that are responsible for the total cost of care, PDPs are responsible only for the cost of the Part D drugs, as such value is not in terms of clinical or financial outcomes but regulatory requirements, enrollment and budget stability instead. Before being administered to patients, a drug must receive regulatory approvals by CMS, which involves meeting all regulatory requirements, such as providing access to medication in the six protected classes.

Within the incentive to limit the use of Part D drugs as a whole, there is incentive for PDPs to encourage the use of Part B drugs in those situations when the Part B drug is an option. Here, PDPs may develop utilization management techniques to shift use from Part D to a Part B treatment. As one can imagine, this would increase utilization of those Part B treatments while lowering use of the competing Part D drug. As such, pharmaceutical manufacturers need to work with PDPs to assure appropriate access by articulating value in terms that matter to them, which again revolves around regulations, enrollment and budget stability.

In the end, assuring access to pharmaceuticals is much more than simply articulating clinical value to a payer; rather, each part of Medicare dictates the decision-maker and the value they apply to drug access decisions. Understanding coverage challenges and guidelines is ultimately critical for manufacturer success.

Dr. Richard Stefanacci
Chief Medical Director

Richard has focused his career on improving health outcomes, especially for some of the most vulnerable populations. This has been achieved through several avenues, beginning with his continued active role as a treating internist/geriatrician.…