March 2019 Prices for and Spending on Specialty Drugs in Medicare Part D and Medicaid Summary 2010–2015 period.1 (In each program, the net price for In recent years, the prices charged for certain types of many drugs is lower than the amount paid to pharma- drugs—referred to as specialty drugs—have become a cies, also referred to as the retail price, because of man- source of concern for many policymakers. Such drugs ufacturers’ rebates and other discounts.) Key findings typically treat chronic, complex, or rare conditions, include the following: frequently have high prices, and may require special handling or patient monitoring. • The net prices paid for brand-name specialty drugs are much higher in Medicare Part D than in From 2010 through 2015, specialty drugs accounted for Medicaid. In 2015, the weighted average net price a growing share of new drugs introduced to the market, for 50 top-selling brand-name specialty drugs in and they were introduced at much higher prices than Medicare Part D was $3,600 per “standardized” nonspecialty drugs. Those factors have contributed to prescription—a measure that roughly corresponds increased spending on prescription drugs in Medicare to a 30-day supply of medication—whereas the Part D (Medicare’s prescription drug benefit) and weighted average net price for the same set of Medicaid. Counting spending by all parties: drugs in Medicaid was $1,920. That difference was attributable to much larger rebates in Medicaid • Net spending on specialty drugs in Medicare Part D than in Medicare Part D. rose from $8.7 billion in 2010 to $32.8 billion in 2015. • Specialty drugs accounted for a growing share of total net drug spending from 2010 to 2015 in both pro- • Net spending on specialty drugs in Medicaid roughly grams, rising from 13 percent to 31 percent of such doubled from 2010 to 2015, rising from $4.8 billion spending in Medicare Part D and from 25 percent to to $9.9 billion. 35 percent in Medicaid. In 2015, brand-name specialty drugs accounted for • For beneficiaries in the Medicare Part D program about 30 percent of net spending on prescription who took brand-name specialty drugs, average annual drugs under Medicare Part D and Medicaid, but they net spending on such drugs per person (in 2015 accounted for only about 1 percent of all prescriptions dollars) roughly tripled over the 2010–2015 period— dispensed in each program. Because Medicare Part D from $11,330 in 2010 to $33,460 in 2015. and Medicaid are two large purchasers of prescription drugs, increases in spending for those drugs could have important implications for the federal budget. 1. For a deeper examination of this topic and a more detailed discussion of the methods used in CBO’s analysis, see Anna In this report, the Congressional Budget Office examines Anderson-Cook, Jared Maeda, and Lyle Nelson, Prices for and the net prices paid for specialty drugs and spending on Spending on Specialty Drugs in Medicare Part D and Medicaid: An In-Depth Analysis, Working Paper 2019-02 (Congressional those drugs in Medicare Part D and Medicaid over the Budget Office, March 2019), www.cbo.gov/publication/55011. 2 Prices for and Spending on Specialty Drugs in Medicare Part D and Medicaid March 2019 What Are Specialty Drugs? This report focuses primarily on specialty drugs that are Researchers and industry stakeholders define specialty purchased from a pharmacy. Such drugs are covered by drugs in varying ways. Some rely on price alone Medicare Part D and Medicaid’s prescription drug bene- to define a specialty drug. However, a more useful fit. Some specialty drugs are administered by physicians definition of specialty drugs encompasses a broader or other health care professionals. Those drugs are gen- set of characteristics that those drugs share, helping erally covered by Medicare Part B (Medical Insurance) to distinguish them from nonspecialty drugs. For this and Medicaid’s medical benefit. However, claims for report, CBO identified the specialty drugs that were drugs that are administered by a physician or other on the market in 2015 using a definition developed health care professional are sometimes submitted under by IQVIA (formerly known as IMS Health).2 By Medicaid’s prescription drug benefit rather than the that definition, a specialty drug must treat a chronic, program’s medical benefit. In 2015, just over 20 percent complex, or rare disease and have at least four of the of net specialty drug spending in Medicaid’s prescrip- following seven characteristics: tion drug benefit was for drugs generally administered by a health care professional. In Medicare Part D, less • Cost at least $6,000 per year in 2015, than 5 percent of specialty drug spending was for such drugs. That difference is one of several factors that • Be initiated or maintained by a specialist, cause the composition of specialty drug spending under Medicaid’s prescription drug benefit to differ from that • Be administered by a health care professional, under Medicare Part D. • Require special handling in the supply chain, How Are Prescription Drug Prices Determined in Medicare Part D and • Be associated with a patient payment-assistance Medicaid? program, The prices of specialty drugs—and all prescription drugs—are determined very differently in Medicare • Be distributed through nontraditional channels Part D than in Medicaid. The Medicare Part D drug (such as a specialty pharmacy), or benefit is delivered by private drug plans, which are mostly chosen by the program’s participants. Under • Require monitoring or counseling either because Part D, drug prices are determined primarily through of significant side effects or because of the type of negotiations between those Part D plans and provid- disease being treated. ers (such as pharmacies and drug manufacturers).4 A key factor that helps Part D plans lower drug costs are On the basis of that definition, “orphan” drugs, rebate payments that the plans negotiate with drug biologic products, and drugs that treat cancer, multiple manufacturers. sclerosis, and human immunodeficiency virus (HIV) are frequently considered to be specialty drugs.3 However, Medicaid beneficiaries can receive drug benefits either high-cost drugs used to treat acute conditions are through a fee-for-service system or through managed generally not considered to be specialty drugs under care plans. In either case, the net prices are heavily IQVIA’s definition. That definition of specialty drugs influenced by two statutory rebates that are linked to includes both brand-name and generic drugs, although prices paid in the private sector. The first statutory over 90 percent of net spending on specialty drugs in rebate is a specified percentage of the average price that both Medicare Part D and Medicaid has been on brand- manufacturers charge to wholesalers and pharmacies name drugs. for each drug. (That percentage is greater for drugs that 2. The list of specialty drugs on the market in 2015 was purchased from IQVIA and is proprietary. (At the time CBO’s analysis was 4.A pharmacy-benefit management company such as Express undertaken, 2015 was the most recent year for which data on Scripts or CVS–Caremark may administer and manage the drug prices and spending were available.) drug benefit on behalf of a Part D plan sponsor. In that case, 3. Orphan drugs are approved to treat a health condition that affects the pharmacy-benefit manager negotiates prices with drug fewer than 200,000 people in the United States. manufacturers and pharmacies. March 2019 Prices for and Spending on Specialty Drugs in Medicare Part D and Medicaid 3 have larger discounts for private-sector purchasers.)5 characteristics, and with a list of specialty drugs on the The second statutory rebate must be paid if the average market in 2015 that was provided by IQVIA.7 price that a manufacturer charges to pharmacies and wholesalers increases faster than general inflation. This For the analysis of Medicare Part D, CBO constructed rebate ensures that the net prices manufacturers receive prices per standardized prescription to control for differ- for drugs purchased by Medicaid beneficiaries do not ences across prescriptions in the number of days a med- increase faster than inflation. States may also negotiate ication was supplied.8 Because of data limitations, CBO for supplemental rebates beyond those statutory rebates did not construct standardized prescriptions for most of by using preferred drug lists.6 the analysis of prices paid by Medicaid.9 What Data and Methods Did CBO Use in The estimates of drug prices and per capita spending Its Analysis? presented in this report for 2010 have been adjusted to CBO used beneficiary-level claims data on the entire 2015 dollars to remove the effects of general inflation Medicare Part D population to estimate retail prices when comparing those results with estimates for 2015. and spending on specialty drugs and nonspecialty All estimates of total drug spending are expressed in drugs over the 2010–2015 period. Those data include nominal terms—that is, they have not been adjusted to the total payment at retail prices and the number of remove the effects of general inflation. CBO expressed units (such as tablets) dispensed for each claim. CBO the spending totals in that way to facilitate comparison also used confidential data on the rebates and dis- with budgetary figures published by CBO and other counts that Part D plans obtained from manufacturers government agencies. during that period to estimate net prices and spending by drug. What Prices Are Paid for Specialty Drugs in Medicare Part D and Medicaid? For Medicaid, CBO used publicly available data on CBO compared the prices paid for 50 top-selling brand- utilization and spending by drug as well as confidential name specialty drugs in Medicare Part D with the prices data on statutory rebate amounts over the 2010–2015 paid for the same drugs in Medicaid. Retail prices for period to estimate net prices and spending for each brand-name specialty drugs are similar in Medicare drug. CBO merged the Medicare Part D and Medicaid Part D and Medicaid, but net prices are much higher data with Red Book data, which include drug product in Medicare Part D because the rebates are substantially smaller than in Medicaid. 5. Manufacturers must pay a basic statutory rebate under Medicaid for brand-name drugs that is equal to at least 23.1 percent of the average price manufacturers charge to pharmacies (and to wholesalers that distribute drugs to pharmacies). If the manufac- 7.Red Book data are available from IBM Micromedex and include turer offers certain private-sector purchasers a rebate that exceeds list prices (such as the wholesale acquisition cost) as well as drug 23.1 percent, then the basic rebate received by Medicaid is characteristics (such as the product name, manufacturer, dosage increased to match that larger private-sector rebate. That linking form, and strength) by National Drug Code. The data also of Medicaid’s price to the lowest price paid in the private sector include identifiers that match generic drugs with their brand- can cause certain private-sector purchasers to pay more for some name counterparts. brand-name drugs. Manufacturers of generic drugs are required to pay a statutory rebate equal to 13 percent of the average price 8.CBO defined a standardized prescription as one in which a medi- that they charge on sales to pharmacies. cation was supplied for a number of days equaling 30 or less. For a prescription in which a medication was supplied for more than 6. Medicaid is a joint federal and state program, and states pay a 30 days, CBO defined the number of standardized prescriptions portion of its costs. Those supplemental rebates are not included as the number of days supplied divided by 30. For example, a in CBO’s analysis because data are not available for them by prescription for a 90-day supply of medication was defined as drug. Supplemental rebates negotiated by states represented less three standardized prescriptions. than 4 percent of Medicaid drug spending at retail prices in 2015. Medicaid managed care organizations may also negotiate 9.CBO constructed standardized prescriptions in Medicaid for 50 for rebates, but those rebates were not included in this analysis top-selling brand-name specialty drugs to compare the average because relevant data were not available. price of those drugs in Medicaid and Medicare Part D. 4 Prices for and Spending on Specialty Drugs in Medicare Part D and Medicaid March 2019 Figure 1 . Weighted Average Prescription Price for 50 Top-Selling Brand-Name Specialty Drugs, 2015 Dollars 5,000 4,380 4,330 Medicare Part D 4,000 3,600 Medicaid For 50 top-selling brand-name 3,000 specialty drugs, the weighted average 2,410 retail price paid to pharmacies was 1,920 nearly identical in Medicare Part D and 2,000 Medicaid, but the weighted average price net of rebates and discounts was 1,000 780 nearly twice as high in Medicare Part D as in Medicaid. 0 Retail Price Net Price Manufacturer Rebates and Discounts Source: Congressional Budget Office. Estimates for Medicare Part D and Medicaid reflect the weighted average price for the same set of drugs—namely, 50 top-selling brand-name specialty drugs in Medicare Part D. The weights were constructed using the number of prescriptions for each drug in Medicare Part D. The prices are for a standardized prescription, which roughly corresponds to a 30-day supply of medication. Prices of 50 Top-Selling Brand-Name Specialty Drugs in Medicare Part D because the rebates and discounts were Medicare Part D and Medicaid in 2015 much smaller than in Medicaid. Rebates and discounts In Medicare Part D, the weighted average retail price per for those 50 drugs averaged 18 percent of the retail price standardized prescription for 50 top-selling brand-name in Medicare Part D and 56 percent of the retail price in specialty drugs was $4,380 in 2015, which was similar Medicaid. to the weighted average retail price for the same drugs in Medicaid (see Figure 1).10 (In that comparison, the “mix” CBO conducted analogous comparisons for 50 top- of drugs—or the share of total standardized prescriptions selling brand-name nonspecialty drugs in Medicare Part attributed to each drug—was held constant for the two D. The average retail price per standardized prescription programs, using Medicare’s mix.) The average retail price for those drugs in 2015 was $300 in Medicare Part D, per standardized prescription for those 50 drugs varied which was very similar to the average retail price in greatly, ranging from $250 to almost $43,000. Medicaid. Net of all rebates and discounts, the weighted average price per standardized prescription for those 50 Net of rebates and discounts, the average price per drugs in Medicare Part D in 2015 was $150—almost standardized prescription was nearly twice as high three times as much as in Medicaid ($55). in Medicare Part D as in Medicaid ($3,600 versus $1,920).11 The average net price was much higher in Price Growth for Brand-Name Specialty Drugs in Medicare Part D and Medicaid CBO used two different approaches to measure the price 10. Each drug’s contribution to the weighted average price was pro- growth of brand-name specialty drugs between 2010 and portional to the total number of prescriptions dispensed for the drug under Medicare Part D. 2015. In the first approach, CBO examined the change in the average net price of a prescription over time. In 11. Starting in 2011, all estimates of net prices in Medicare Part D the second approach, CBO used a price index to exam- in this report include the discount of 50 percent for prescriptions dispensed in a specified phase of the Part D benefit (referred to as ine the average annual increase in drug prices over time the coverage gap) that manufacturers of brand-name drugs were after they were introduced. The first approach captures required to provide for beneficiaries who do not receive low- increases in the prices of individual drugs over time as income subsidies. March 2019 Prices for and Spending on Specialty Drugs in Medicare Part D and Medicaid 5 Figure 2 . Change in Average Net Price of Brand-Name Specialty Drugs, 2010 to 2015 Price per Prescription in 2015 Dollars 10,000 8,680 All Drugs 8,000 Older Drugs (On the Market in 2010) From 2010 to 2015, the average net price of a prescription for a New Drugs brand-name specialty drug increased 6,000 (Introduced After 2010) 4,660 sharply in both Medicare Part D and Medicaid. In each program, that 4,000 3,590 increase was primarily attributable 2,570 to a shift toward use of higher- 2,000 priced drugs, including those newly 1,310 1,310 1,220 introduced to the market. 700 700 900 0 Part D, 2010 Part D, 2015 Medicaid, 2010 Medicaid, 2015 Source: Congressional Budget Office. Prices in 2010 were converted to 2015 dollars using the price index for personal consumption expenditures. The category “New Drugs (Introduced After 2010)” is limited to new molecular entities and biologic products that appear on the Food and Drug Administration’s list of approved “Novel Drug Products” over the 2011–2015 period. Average net prices are equal to total payments to pharmacies, less rebates and discounts, divided by the number of prescriptions dispensed within each program. well as shifts in the mix of drugs used between years. $700 to $1,220 in 2015 dollars.13 (Those estimates The second approach captures average price increases for encompass changes in the mix of drugs used as well as individual drugs between consecutive years while hold- inflation-adjusted increases in drug prices over time.) The ing the mix of drugs constant between years. The first net price growth was greater in Medicare Part D primar- approach yields a much higher estimate of price growth ily because there was a greater shift toward higher-priced because it incorporates not only the growth captured by specialty drugs in that program than in Medicaid. the price-index approach but also the shift in use toward higher-priced drugs—including new drugs—during the In each program, the increase in the average net price period examined. of a prescription for brand-name specialty drugs was largely attributable to a shift toward use of higher-priced Change in the Average Net Price of a Prescription. drugs—especially new drugs that were introduced after The average net price of a prescription for brand-name specialty drugs increased more rapidly from 2010 to 13. If drugs administered by a physician are excluded from the 2015 in Medicare Part D than in Medicaid. The aver- analysis, the average price of a brand-name specialty drug grows a age net price per prescription of a brand-name specialty bit more quickly over the period in both Medicaid and Medicare drug in Medicare Part D grew at an average annual Part D. However, the basic conclusions regarding the compar- rate of 22 percent from 2010 to 2015, increasing from ison between Medicare Part D and Medicaid do not change $1,310 to $3,590 in 2015 dollars (see Figure 2).12 Over markedly if physician-administered drugs are excluded from the that same period, the average net price per prescrip- calculations. With those drugs excluded, the average net price per prescription of a brand-name specialty drug was still much lower tion of a brand-name specialty drug in Medicaid grew in Medicaid than in Medicare Part D in both 2010 and 2015, at an average annual rate of 11 percent, rising from and the average net price grew at a much slower rate in Medicaid than in Medicare Part D. That analysis is described in greater detail in the working paper that accompanies this report. See 12. Those estimates reflect the increase in the average price of a Anna Anderson-Cook, Jared Maeda, and Lyle Nelson, Prices for prescription across all brand-name specialty drugs in the two pro- and Spending on Specialty Drugs in Medicare Part D and Medicaid: grams. The analysis was not restricted to the 50 top-selling drugs An In-Depth Analysis, Working Paper 2019-02 (Congressional included in Figure 1. Budget Office, March 2019), www.cbo.gov/publication/55011. 6 Prices for and Spending on Specialty Drugs in Medicare Part D and Medicaid March 2019 2010. In 2015, the average net price per prescription What Are the Recent Trends in Spending for those new drugs was $8,680 in Medicare Part D and on Specialty Drugs in Medicare Part D and $4,660 in Medicaid. Medicaid? Specialty drugs accounted for a growing share of net Average Annual Increase in Net Drug Prices Using drug spending in Medicare Part D and Medicaid from a Price Index. Using a price-index approach, CBO 2010 to 2015. Those increases in spending incorporate estimates that the net prices of brand-name specialty the effects of changes in the prices paid for drugs and drugs in Medicare Part D grew at an average annual the quantities purchased. On the basis of past trends rate of 5.8 percent from 2010 to 2015.14 That increase and information on recent drug approvals and drugs is far smaller than the 22 percent increase in the aver- currently under development, CBO expects that trend to age net price of a prescription for brand-name specialty continue. drugs that was cited above for the same period. The price-index approach yields a much slower rate of Specialty drugs are used to treat a similar set of health growth because it does not reflect the increasing use conditions in Medicare Part D and Medicaid, although of higher-priced drugs. For example, the price-index the distribution of spending by condition differs between approach does not capture the effect of the higher the two programs because of substantial differences prices at which new specialty drugs were introduced in the characteristics of the covered populations. In (though it captures any subsequent increases in the Medicare Part D, the three conditions that accounted prices of those drugs). for the most spending on specialty drugs in 2015 were hepatitis C and cancer (each of which accounted for After brand-name specialty drugs were introduced to 24 percent of spending on specialty drugs valued at retail the market, the average net price per prescription in prices) and multiple sclerosis (12 percent). In Medicaid, Medicare Part D grew more slowly for such drugs than the three conditions that accounted for the most spend- for brand-name nonspecialty drugs from 2010 through ing on specialty drugs valued at retail prices were HIV 2015—5.8 percent versus 7.4 percent. However, net (22 percent), hepatitis C (17 percent), and cancer prices for brand-name specialty drugs are substan- (13 percent). tially higher than those for brand-name nonspecialty drugs. Consequently, those estimates of price growth Net Spending on Specialty Drugs imply that net prices for prescriptions for brand-name Between 2010 and 2015, net spending on specialty drugs specialty drugs increased by an average of about $90 per in Medicare Part D increased from $8.7 billion in 2010 year from 2010 to 2015, whereas those for nonspecialty to $32.8 billion in 2015, an average annual increase of brand-name drugs increased by about $10 per year on 31 percent (see Figure 3). Over the same period, net average. spending on specialty drugs in Medicaid increased from $4.8 billion to $9.9 billion, an average annual increase of Because of data limitations, CBO could not apply the 16 percent (see Figure 4).15 During that time, the share price-index approach that was used for Medicare Part D of net spending accounted for by specialty drugs rose to assess the annual increase in net drug prices over time for Medicaid. However, because of the inflation rebate in Medicaid, CBO expects that the growth of net prices would have been slower in Medicaid than in Medicare 15. For each program, the growth in net spending on specialty drugs Part D. was partly due to an increase in enrollment. Over the 2010–2015 period, enrollment in Medicare Part D grew at an average annual rate of 7 percent. Because of data limitations, the number of Medicaid beneficiaries who have drug benefits through the program cannot be precisely estimated. Evidence suggests that 14. The price index incorporated new products as they were intro- the number of Medicaid beneficiaries with drug benefits grew duced to the market. However, the mix of drugs was held con- by somewhat more than 5 percent per year over the 2010–2015 stant from one year to the next when estimating the average rate period. For more details, see Anna Anderson-Cook, Jared Maeda, of price growth from one year to the next over the period. CBO and Lyle Nelson, Prices for and Spending on Specialty Drugs in computed the average annual increase in prices for each pair of Medicare Part D and Medicaid: An In-Depth Analysis, Working years over the 2010–2015 period. All prices were expressed in Paper 2019-02 (Congressional Budget Office, March 2019), 2015 dollars. www.cbo.gov/publication/55011. March 2019 Prices for and Spending on Specialty Drugs in Medicare Part D and Medicaid 7 Figure 3 . Net Drug Spending in Medicare Part D Billions of Dollars 120 All Drugs 90 Nonspecialty Drugs In Medicare Part D, net spending on specialty drugs rose from $8.7 billion 60 in 2010 to $32.8 billion in 2015, an average annual increase of Specialty Drugs 31 percent. That increase accounted for much of the growth in Part D 30 spending. 0 2010 2011 2012 2013 2014 2015 Source: Congressional Budget Office. Estimates have not been adjusted to remove the effects of general inflation. from 13 percent to 31 percent in Medicare Part D and almost entirely attributable to growth in spending for from 25 percent to 35 percent in Medicaid.16 brand-name specialty drugs, which in turn was the result of an increase in the average net price of a standardized Growth in Net per Capita Spending on Specialty Drugs prescription for such drugs. in Medicare Part D On a per capita basis and with the effects of general CBO could not estimate net per capita spending on inflation removed, drug spending did not increase very specialty drugs as precisely for Medicaid because of data much in Medicare Part D over the 2010–2015 period. limitations. However, the agency was able to determine That is because the increase in specialty drug spending that net per capita spending on specialty drugs grew at a per beneficiary was largely offset by a decline in spend- much slower rate from 2010 through 2015 in Medicaid ing on nonspecialty drugs. Net per capita spending on than in Medicare Part D and that net per capita spend- specialty drugs in Medicare Part D grew from $330 in ing on both specialty drugs and nonspecialty drugs was 2010 to $830 in 2015 (an average annual rate of increase much lower in Medicaid than in Medicare Part D. CBO of 20 percent), whereas net per capita spending on non- estimates that, in 2015, net spending for both specialty specialty drugs fell from $2,290 to $1,830 (an average and nonspecialty drugs per Medicaid beneficiary with annual rate of decrease of 4 percent) (see Figure 5). (As drug coverage was roughly $500. The lower net per cap- is the case for all estimates of per capita drug spending ita spending on specialty drugs in Medicaid is the result in this report, those estimates are expressed in 2015 of lower utilization among the Medicaid population dollars to remove the effects of general inflation.) The and lower net prices in Medicaid. The lower utilization growth in net per capita spending on specialty drugs was is attributable to the fact that, on average, people who receive their drug benefits through Medicaid (mostly 16. Excluding physician-administered drugs from the analysis children and nondisabled adults under age 65) are in reduces the share of Medicaid drug spending accounted for by better health than those who receive their drug benefits specialty drugs in each year but has little effect on the corre- through Medicare Part D (mostly adults age 65 or older sponding share for Medicare Part D. With physician-adminis- and the disabled). tered drugs excluded, specialty drug spending in Medicaid grew somewhat faster but still much more slowly than in Medicare Part D. That analysis is discussed in greater detail in the working Net Spending on Brand-Name Specialty Drugs paper published along with this report. See Anna Anderson- Among Users of Such Drugs in Medicare Part D Cook, Jared Maeda, and Lyle Nelson, Prices for and Spending on Average annual net spending per enrollee on brand- Specialty Drugs in Medicare Part D and Medicaid: An In-Depth name specialty drugs among Part D enrollees who Analysis, Working Paper 2019-02 (Congressional Budget Office, took such drugs increased from $11,330 in 2010 to March 2019), www.cbo.gov/publication/55011. 8 Prices for and Spending on Specialty Drugs in Medicare Part D and Medicaid March 2019 Figure 4 . Net Drug Spending in Medicaid Billions of Dollars 40 All Drugs 30 Nonspecialty Drugs In Medicaid, net spending on specialty 20 drugs rose from $4.8 billion in 2010 to $9.9 billion in 2015, an average Specialty Drugs annual increase of 16 percent. 10 0 2010 2011 2012 2013 2014 2015 Source: Congressional Budget Office. Estimates have not been adjusted to remove the effects of general inflation. $33,460 in 2015 (in 2015 dollars). Among Part D from 20 percent to 40 percent. Over that period, brand- enrollees who used a brand-name specialty drug and name specialty drugs accounted for just over 80 percent did not receive assistance with their cost sharing (either of the growth in net spending per beneficiary in that through the low-income subsidy program or through phase of the Part D benefit. an employer-sponsored plan), the average annual net spending on such drugs increased fourfold (from $8,970 What Is the Outlook for Future Spending in 2010 to $36,730 in 2015), and their average out- on Specialty Drugs in Medicare Part D and of-pocket cost for those drugs increased from $1,750 Medicaid? in 2010 to $3,540 in 2015 (all estimates are in 2015 On the basis of recent growth in the share of new drugs dollars; see Figure 6). Out-of-pocket costs for brand- that are specialty drugs and information about drugs name specialty drugs accounted for nearly 90 percent of being developed, CBO expects that the share of net total out-of-pocket costs under Part D for those bene- spending in Medicare Part D and Medicaid devoted ficiaries in 2015. Net spending on specialty drugs and to specialty drugs will continue to grow in the coming out-of-pocket costs for those drugs varied greatly across years. In recent years, specialty drugs have accounted for beneficiaries. a large share of spending in both programs on innovative new drugs (those that have just been introduced to the Some experts have raised concerns about the rapid market and have never before been used in clinical prac- increase in spending in the catastrophic phase of the tice). Among innovative brand-name drugs introduced Medicare Part D benefit, which in 2015, an enrollee to the market between 2011 and 2015, specialty drugs entered after incurring $4,700 in out-of-pocket spend- accounted for about three-quarters of spending in 2015 ing. In that phase of the benefit, Part D plans have lim- in both Medicare Part D and Medicaid. Information on ited incentives to manage enrollees’ drug costs because drugs recently approved and under development also the federal government reimburses the plans directly suggests that specialty drugs will continue to account for about 80 percent of those costs (and beneficiaries for a growing share of net spending in the future. For pay 5 percent). From 2010 to 2015, the share of drug example, about 80 percent of the drugs approved by the spending in Medicare Part D (valued at retail prices) that Food and Drug Administration in 2017 could be classi- fell within the catastrophic phase of the benefit doubled fied as specialty drugs under most definitions. March 2019 Prices for and Spending on Specialty Drugs in Medicare Part D and Medicaid 9 Figure 5 . Net per Capita Spending in Medicare Part D Per Capita Spending in 2015 Dollars 3,000 2,620 2,660 2010 2015 2,290 2,000 1,830 On a per capita basis and with the effects of general inflation removed, the increase in spending on specialty drugs in Medicare Part D was largely 1,000 830 offset by a decline in spending on nonspecialty drugs. 330 0 Specialty Nonspecialty Total Source: Congressional Budget Office. Spending estimates for 2010 were converted to 2015 dollars using the price index for personal consumption expenditures. Figure 6 . Annual Net Spending on Brand-Name Specialty Drugs in Medicare Part D Among Users Without Cost-Sharing Assistance Spending per User in 2015 Dollars 40,000 36,730 2010 33,530 2015 30,000 Among Part D enrollees who used a brand-name specialty drug and did not receive any cost-sharing assistance, 20,000 average annual net spending on such drugs increased fourfold and their average annual out-of-pocket costs 8,970 10,000 for those drugs doubled from 2010 5,960 3,540 to 2015. 1,750 0 Total Net Spending Out-of-Pocket Costs Spending in Catastrophic Phase Source: Congressional Budget Office. Spending estimates for 2010 were converted to 2015 dollars using the price index for personal consumption expenditures. The catastrophic phase of the benefit begins after a beneficiary’s out-of-pocket costs exceed a certain threshold; in that phase, beneficiaries pay 5 percent of the costs and the federal government reimburses Part D plans directly for about 80 percent of the costs. In 2015, the threshold was $4,700. 10 Prices for and Spending on Specialty Drugs in Medicare Part D and Medicaid March 2019 This report was prepared at the request of the Chairman of the House Committee on Ways and Means. In keeping with the Congressional Budget Office’s mandate to provide objective, impartial analysis, the report makes no recommendations. Anna Anderson-Cook and Jared Maeda prepared the document with assistance from Ru Ding and Yash M. Patel and guidance from Lyle Nelson. Jessica Banthin, Tom Bradley, Alice Burns, Julia Christensen, Sebastien Gay, Tamara Hayford, Andrea Noda (formerly of CBO), Lara Robillard, David Weaver, Ellen Werble, and Rebecca Yip provided comments. Richard Frank of Harvard University, Michael Kleinrock of IQVIA, Rachel Schmidt of the Medicare Payment Advisory Commission, and Erin Trish of the University of Southern California also provided helpful comments. (The assistance of external reviewers implies no responsibility for the final product, which rests solely with CBO.) Jeffrey Kling and Robert Sunshine reviewed the document, Loretta Lettner edited it, and Jorge Salazar prepared it for publication. An electronic version is available on CBO’s website (www.cbo.gov/publication/54964). CBO continually seeks feedback to make its work as useful as possible. Please send any feedback to communications@cbo.gov. Keith Hall Director March 2019