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Medicare flip-flops, soaring drug prices and doughnut holes

September 25, 2008 |  5:33 pm

As my nonagenarian mother likes to say, unaware that she's quoting Bette Davis, "Old age is no place for sissies."

Donuthole1 That's for sure. A person needs a spine of steel to figure out the Medicare Part D drug benefit, understand what the doughnut hole is, when she might fall into it, and when she can crawl back out of it.

But maybe some folks are figuring it out. One study released today shows that people on Medicare, generally those 65 and older, have learned a few tricks in working the system. Though that same report shows that inadequate drug coverage from the plan results in a lot of people skipping their medications.

Another report shows, maybe less surprisingly, that drug companies have some tricks of their own.

First, some background. You need a few facts that folks 65 and older have had to absorb about what Medicare Part D is. It's the part of Medicare that covers drug costs -- to a point. That point, called the Medicare Coverage Gap, is also known as the doughnut hole. That's because drugs are covered, after co-payments and deductibles, under the plan until a beneficiary's total drug costs reach $2,400. After that, the person continues to pay the insurance premium, but gets no help with pharmaceutical costs until total drug costs reach $5,451, at which point catastrophic coverage kicks in, with Medicare again covering drug costs -- this time with a lower co-pay.

Get it?

So anyway, the AARP issued a watchdog report showing that drug companies have raised the prices, higher than the rate of inflation, of a small but lucrative niche of 144 drugs used by many people on Medicare. They're called specialty drugs, and are among the most expensive drugs on the market, ranging from $5,000 a year to more than $300,000 a year. In 2007, the cost of those drugs rose 8.7%, or three times the general rate of inflation. With those costs, a older person would reach the doughnut hole pretty quickly.

"The skyrocketing cost of specialty drugs is especially tragic for those suffering from diseases like cancer and multiple sclerosis," said John Rother, AARP executive vice president of policy and strategy, in a news release. "Even the most miraculous drug is useless if a person can't afford to take it. Specialty drug makers continue to raise the costs of drugs that have already been developed and tested."

But, says a statement from the Pharmaceutical Research and Manufacturers of America, which represents the country's pharmaceutical and biotechnology companies, those specialty drugs represent  a small subset of overall prescription drugs -- only 7% of total healthcare spending. "Overall prices for Part D-covered medicines are stable," said Senior Vice President of PhRMA Ken Johnson in the statement.

But a second study, put out by Medco Health Solutions Inc., a pharmacy benefit manager, looked at how Medicare recipients are using that doughnut hole. It looked at all three stages: the first level of coverage up to $2,400; the middle when coverage stops; and the final stage, when catastrophic coverage kicks in.

  • "During the initial phase of coverage -- where enrollees pay a copay -- nearly two-thirds of prescriptions in the study were filled for brand medications.
  • Once seniors hit the coverage gap, usage flipped -- 56% of medications were filled for generics.
  • But in the catastrophic phase, two-thirds of medications were for brands."

So the elders, or their physicians, flipped from brand name drugs to generics when their own costs went up, then flopped back to higher-cost brand names when the government picked up the tab again. According to the Medco news release:

"The results present remarkable insight into the behavior of some Medicare enrollees: that many seem to choose the value of generics when they themselves are saddled with the cost, but that brand medications retain a grip on them, especially when someone else is footing the bill."

But the Medco analysis also found that those seniors who are taking a brand name cholesterol-lowering drug, for example, are more likely to stop taking it when they reach the doughnut hole than those taking a generic version of the same drug. In 2007, the rate of patients who stopped their generic cholesterol-lowering drug was 20% lower than those who stopped the brand name drugs.

How long does it take the average Medicare recipient to reach the gap in coverage? About 22% were there by July 2007, and by December, half of all with the benefit were either in the gap, or had reached the stage of catastrophic coverage.

It's a lot to understand, and, it seems, a lot of Medicare recipients get a deeper understanding of their benefit when they hit the doughnut hole, and their druggist hands them an unexpectedly large bill.

-- Susan Brink

Photo: Watch out for that doughnut hole. Credit: Spencer Weiner / Los Angeles Times