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Medicare Prescription Drug Plans Reduce Average Number of Covered Drugs in 2008

Contact: Lindsey Spindle, 202.207.1337, lspindle@avalerehealth.net

11.16.07

Washington, DC – The most popular standalone Medicare prescription drug plans will cover fewer drugs in 2008, says a new independent analysis released today by Avalere Health. The result is explained in part by the Centers for Medicare & Medicaid Services’ (CMS) decision to drop more than 1,500 drug codes from last year’s list of formulary-approvable drugs, including some that lack FDA approval.

Using its proprietary DataFrame® database tool and recently released CMS public use file data, Avalere researchers compared formularies of the 1,824 available standalone prescription drug plans (PDPs) entering the 2008 market. Avalere analyzed trends in the total number of drugs covered, changes in cost-sharing arrangements, and other aspects that shape the consumer experience under Medicare Part D.

Of the top 10 PDPs by enrollment, all but two will decrease the total number of Part D covered drugs. Taken together, the top ten plans decreased the size of their formularies by 26%, from an average of 3,094 drugs in 2007 to 2,285 drugs in 2008. Overall, the enrollment weighted average number of covered drugs in 2008 is 2,134, a 26% decrease from the 2007 average of 2,892.

The reductions may largely be attributed to plans’ reaction to the CMS decision to no longer include drugs lacking FDA approval on the CMS list of formulary-approvable drugs. Other possible reasons for shrinking formularies include plans’ desire to: position competitively, increase rebates, or mitigate out-of-pocket patient costs. Silverscript is the only one of the top 10 most popular PDPs that is dramatically increasing its formulary for 2008, relative to its 2007 formulary; WellCare added a total of six drugs to its 2007 formulary total.

Importantly, in 2007, CMS allowed plans to build their Part D formularies from a list of approximately 7,100 products, but for 2008, CMS reduced that number to around 5,500 products. In 2008, most of the top 10 plans increased the proportion of covered drugs relative to the respective CMS 2007 and 2008 formulary reference files.

The products deleted by CMS for the 2008 plan year include many drugs that are not FDA-approved, consistent with CMS policy that Part D drugs must be FDA approved. By FDA standards, drugs approved since 1962 are approved on the basis of safety and efficacy. Drugs approved by the FDA between 1938 and 1962 were reviewed on the basis of safety, but not efficacy. According to CMS policy, drugs approved in the 1938-1962 period, and since determined to be "less than effective," should not be covered by Part D plans. This non-coverage determination comes despite the fact many of those products deemed less than effective appear in formulary reference files used by plans to design their Part D formularies in 2006 and 2007. In 2008, CMS has removed those drugs from its formulary reference file, and thus most plans are no longer covering them. A small proportion of plans have elected to cover some of these drugs on their own, without access to Medicare subsidies.

Avalere also found that consumers can expect an even larger spread in their payments for generic and branded drugs, and that the four-tier drug plan design has become the overwhelming favorite for Medicare PDPs (over 87% use four tiers or more, whereas three-tier designs are still the most popular in the commercial world). Consumers can expect significant increases in cost sharing for drugs positioned on the second tier (usually preferred brand-name drugs) and the fourth tier (usually more expensive biologic and specialty products).

"Consumers should look beyond monthly premiums to the specific formularies to ensure drugs that they are concerned about are covered and at a cost level they can afford," said Jon Glaudemans, senior vice president of Avalere Health, and the lead researcher for this analysis. "Changes are occurring at all levels of the Medicare drug benefit – from significant movements in monthly premiums, to the composition and copayment structure of formularies."

Avalere Health is an advisory services company whose core purpose is to create innovative solutions to complex healthcare problems. Based in Washington DC, the firm delivers research, analysis, insight, and strategy for leaders in healthcare business and policy. Avalere's experts span 125 staff drawn from the federal government (e.g., CMS, OMB, CBO, and the Congress), Fortune 500 healthcare companies, top consultancies, and nonprofits. The firm offers deep substance in areas ranging from healthcare coverage and financing to the changing role of evidence in healthcare decision-making. Its focus on strategy is supported by a rigorous, in-house analytic research group that uses public and private data to generate quantitative insight. Through events, publications, and interactive programs, Avalere also translates real-time healthcare developments into actionable information.

Learn more at www.avalerehealth.net.

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