Is Medicare Overpaying for Specialty Medications Under Part B?

The 10 highest-expenditure Medicare Part B drugs, all of which are classified as specialty medications, accounted for 45% of Part B spending in 2010, according to a report from the US Government Accountability Office highlighted in recent congressional testimony.

In a statement prepared for recent congressional testimony, representatives of the US Government Accountability Office (GAO) highlighted results of a 2012 report finding that, just like many patients with chronic conditions, Medicare is paying inflated prices for specialty medications under Part B.

Unlike Medicare Part D, which covers drugs under the pharmacy benefit, Medicare Part B covers drugs that are typically administered by a physician in an office or outpatient setting.

In the statement, James Cosgrove, director of health care for the GAO, noted that the original report on expenditure is from 2010, and because many new (and high-priced) medications have come to market since 2010, "a snapshot taken today would likely show a somewhat different set of drugs.” Nonetheless, the report provides ample evidence that Medicare spending on specialty medications has gone through the roof: “Of the $16.9 billion Medicare spent in 2010 for the 55 highest-expenditure Part B medications, $11 billion (65%) was spent on drugs for which Medicare was the largest US payer.”

Of the “10 Highest-Expenditure Medicare Part B Drugs” highlighted in the report, 8 are biologic products. The other 2 drugs on the list (Alimta and Taxotere), both used to treat cancer, are also considered specialty medications. Four of the drugs on the list had orphan market exclusivity, and unsurprisingly, none had generic alternatives that were available to patients in the United States.

Chart Source: GAO

Investigators at the GAO were particularly concerned about how manufacturers “allocate rebates to individual drugs sold in combination with other drugs and claimed manufacturers “had no data that would allow it to validate the underlying reasonableness of prices.” In addition, the GAO report criticized CMS for not obtaining price and volume data by purchaser type and for not justifying how it came up with its payment rate (6% above average sales price) for Part B medications.

“If CMS were a private sector organization spending the most in the country on 65% of the drugs it purchased, it would use its buying power to bargain for a better price on those drugs and certainly wouldn’t voluntarily pay a 6% premium,” John S. Wilson, a health policy analyst for a state Medicaid agency, wrote in a recent Forbes article. He also pointed out that, although CMS is not allowed to negotiate drug prices with the pharmaceutical industry, Medicare still failed to use its “enormous leverage” to its advantage.

Since most payers model their coverage practices on those of Medicare, the findings in the GAO report suggest that health plan spending on drugs typically administered by a physician may also be excessive.

The report also mentions patent protection as a factor affecting the price of medications through Part B, as many of the drugs on the “top 10” list for expenditure were biologics, and biologics have a longer patent period (20 years). According to Wilson, both the Domenici-Rivlin Debt Reduction Task Force and the Obama Administration have recommended shortening the biologics exclusivity period to 7 years, which would save Medicare and Medicaid an estimated $3.5 billion over a decade.