Medicare Catastrophic Coverage Spending Tripled Since 2010, OIG Reports

Payments for catastrophic coverage under Medicare Part D have more than tripled since 2010, rising past $33 billion in 2015, according to a new report from the Office of Inspector General (OIG). The report identified high-priced specialty drugs as a major driver of the increase in spending.

Part D catastrophic coverage is paid by Medicare to private insurance sponsors when a beneficiary’s out-of-pocket costs exceed a designated threshold, which was $4700 in 2015. The OIG researchers analyzed data from Part D prescription drug event records and calculated each drug’s average monthly price. The report summarizes the 5-year trends in payments for drug spending overall and for high-price drugs, defined as having an average price of over $1000 per month.

The federal payments for catastrophic coverage grew from $10.8 billion in 2010 to $33.2 billion in 2015, representing a 208% increase. The highest yearly increase occurred from 2013 to 2014, when spending climbed from $19.2 billion to $27.2 billion per year. Before 2014, the most expensive component of the Part D program was the direct or low-income subsidy, but in that year the catastrophic coverage payments became the most expensive part of the program. The report noted that “by 2015, federal payments for catastrophic coverage accounted for 42% of federal payments for Part D.”

The major driver of the increase in payments was the rise in spending for high-price drugs, which accounted for 65% of total catastrophic coverage drug spending—this includes payments from the beneficiary, the federal government, and the sponsor. In 2010, these high-price drugs were responsible for 32% of total drug spending, but that proportion had risen to almost two-thirds by 2015.

In particular, there were 10 high-price drugs that were responsible for 30% of all catastrophic coverage drug spending. These treatments, for conditions such as hepatitis C, multiple sclerosis, and cancer, cost an average of several thousand dollars per month. Of the 10 drugs, 4 were introduced to the market after 2010 and the remaining 6 that were on the market before 2010 saw a significant price increase by 2015.

The costliest specialty drugs were the hepatitis C treatments Harvoni and Sovaldi—both had an average price of over $30,000 per month. These 2 drugs accounted for $7.5 billion in catastrophic coverage spending in 2015, representing almost half of the $15.6 billion spent on the aforementioned 10 high-price drugs that year.

Because beneficiaries must pay 5% of the drug’s price even after catastrophic coverage kicks in, these high-price drugs were responsible for a 47% increase in the patients’ out-of-pocket (OOP) costs from 2010 to 2015. In 2015, the average OOP cost for beneficiaries on high-price drugs in catastrophic coverage was $257 per month. These costs could reach over $1300 per month for patients on the costly hepatitis C drugs.

“The dramatic growth in federal payments for catastrophic coverage and the underlying issue of high-price drugs must be analyzed and addressed to secure the future of the Part D program,” the report cautioned. It recommended several ways that CMS could potentially contain these costs, such as increased price transparency, value-based pricing, and benefit restructuring.