The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes

Transcription

1 The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes October 2005 Prepared for: American Diabetes Association By: Avalere Health LLC

2 Executive Summary The Medicare Part D prescription drug benefit will begin on January 1, 2006, and the initial enrollment period will begin on November 15, The new benefit will, for the first time, offer Medicare coverage for the drugs commonly taken by Medicare beneficiaries with diabetes, including insulins and oral anti-diabetic agents. A key question is how the millions of beneficiaries with diabetes will fare under this new benefit and how much they will spend on Medicare Part B, which provides coverage for other diabetes supplies, including insulin pumps and blood glucose monitoring supplies. In order to examine this question, Avalere Health developed a cost model to identify the impact of the Medicare prescription drug benefit and the cost of self-monitoring blood glucose for beneficiaries with diabetes. Key findings regarding the prescription drug benefit s impact on beneficiaries with diabetes are as follows: Medicare beneficiaries with diabetes represent a large portion of the population eligible for the prescription drug benefit.» In 2003, almost 14 million individuals of Medicare age (over 65) had diabetes, which is 39.4% of all Medicare beneficiaries over age 65 enrolled in » Minority populations of Medicare age, including both African American and Latino/Hispanic populations, are disproportionately affected by diabetes and will form a large portion (~51%) of the diabetes population eligible for the Medicare drug benefit. 2 Most beneficiaries with diabetes over age 65 take medication to treat their disease insulin and/or oral anti-diabetics which will be covered under the Medicare prescription drug benefit.» In 2003, 88.4% of individuals with diabetes ages took oral anti-diabetics and/or insulin; 86.1% of individuals with diabetes ages 75 and over took oral anti-diabetics and/or insulin. 3 By reducing costs, cost-containment strategies will benefit both the plans that offer the Medicare drug benefit and the Medicare beneficiaries with chronic diseases like diabetes. Lower costs are desired by beneficiaries, but attention must be paid that these strategies do not adversely affect access to appropriate medication. Out-of-pocket costs have been shown to lead to medication nonadherence, especially for older populations with limited incomes or patients with chronic diseases.» The private drug plans that will administer the Medicare benefit have broad discretion in designing plan benefit structures and implementing cost-containment strategies, including multi-tiered formularies, prior authorization, and step therapy. This ability may limit patient access to certain medications as well as reduce the clarity and transparency of drug coverage. Until plan formularies are made public, the impact of these coverage requirements on beneficiary access and quality of care is unknown. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 1

3 » Many of the drugs taken by Medicare beneficiaries with diabetes, including oral anti-diabetics, certain kinds of insulins, and cholesterol lowering medications, are not available as generics and thus are likely to require higher out-of-pocket expenses from beneficiaries, which may result in greater noncompliance with treatment regiments. It is unlikely that the cost of diabetes medications alone will cause beneficiaries to reach the 100% coverage gap or donut hole where patients will be responsible for the full cost of their medications, regardless of beneficiary income level.» However, beneficiaries with diabetes, particularly those with other co-morbidities who take medications in addition to oral anti-diabetics and/or insulin, will reach the donut hole, and that costsharing increase may adversely affect their care.» The Avalere Health cost model examined four common therapy regimens, but other combinations of medications, both brand-name and generic, are possible. Additional research should be conducted to fully understand the impact of diabetes medication regimens and cost sharing. Out-of-pocket spending under the Medicare prescription drug benefit for beneficiaries with diabetes will be most burdensome for low-income seniors who are near-poor but not poor enough to qualify for subsidies. Dual eligible beneficiaries and seniors with higher incomes will not be as severely impacted as the near-poor.» Beneficiaries with incomes of less than 135% of the Federal Poverty Level (FPL) will spend approximately 9% of their income on prescription drugs and Medicare Part B premiums and services to treat diabetes.» However, low-income beneficiaries experience may not be uniform: those currently without any prescription drug coverage will spend significantly less than they do without Medicare Part D coverage; those currently enrolled in a state pharmacy assistance program that will end in January 2006 may spend more under the drug benefit.» Dual eligible beneficiaries in most states will experience similar (limited) out-of-pocket spending as they transition from Medicaid to Medicare prescription drug coverage, but their access to drugs must be carefully monitored as the benefit is implemented. Beneficiaries with incomes of slightly more than 150% of FPL who take three diabetes medications, a statin, and an ACE inhibitor will spend more than 21% of their income on those five prescription drugs and Medicare Part B premiums and services annually.» MMA mandates increases in premiums and deductibles over the next ten years, and therefore it is likely that these beneficiary expenditures will increase in the future. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 2

4 The Medicare prescription drug benefit will not change cost sharing on Part B services for patients with diabetes. Beneficiary out-of-pocket costs for these services are high, particularly for beneficiaries without secondary insurance (e.g., Medigap, Medicaid, or employer insurance).» In 2002, average out-of-pocket hospital costs per individual with diabetes, age 65 and over, were $801. 4» Average 2002 out-of-pocket physician office visit costs per individual with diabetes, age 65 and over, were $207. 5» Other Part B costs incurred by beneficiaries with diabetes include out-of-pocket costs for home health and hospice visits. These costs are for services related to the care of diabetes, in addition to the Part D prescription drug benefit out-of-pocket costs. Monitoring access to care for beneficiaries with diabetes is critical given the size of the Medicare diabetes patient population, the chronic nature of diabetes and high risk for complications, and the fact that most diabetes treatments will be covered by Medicare for the first time under the prescription drug benefit. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 3

5 Study Purpose The Medicare Part D prescription drug benefit will begin on January 1, 2006, and the initial enrollment period will begin on November 15, The new benefit will, for the first time, offer Medicare coverage for the drugs commonly taken by Medicare beneficiaries with diabetes, including insulins and oral anti-diabetic agents. A key question is how the millions of beneficiaries with diabetes will fare under this new benefit. In order to examine this question, Avalere Health developed a cost model to identify the impact of the Medicare prescription drug benefit on beneficiaries with diabetes. Contents The paper is organized into four sections: Background: We organized secondary information from the published literature, available healthcare databases, and government statistics to provide a summary of the characteristics of the Medicare diabetes patient population. Overview of the Medicare Prescription Drug Benefit: Based on analysis of regulations and CMS guidance documents, we developed an overview of the Medicare prescription drug benefit and its implications for beneficiaries with diabetes. Beneficiary Cost-Sharing: Using data available regarding the likely structure of the prescription drug benefit and average prescription drug use of Medicare beneficiaries with diabetes, we created a model to estimate the average cost sharing for Medicare beneficiaries with diabetes at various income levels. To account for variations in the prescription drugs taken by Medicare beneficiaries with diabetes, we created four patient profiles, each of which assumes a different treatment regimen. Key Findings: We outlined overarching findings from our research, including risks and benefits of the drug benefit for Medicare beneficiaries with diabetes and the future tracking needed to ensure that these beneficiaries receive the care they need under the benefit. A more detailed discussion of our methodology is included in the Appendix of this paper. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 4

6 Background What Is Diabetes? Diabetes is a group of diseases characterized by the presence of too much glucose in the blood. Under normal conditions, insulin, a hormone produced by the pancreas, moves glucose from the blood into cells. In type 1 diabetes, the body does not produce enough insulin. In type 2 diabetes, the body may not produce enough insulin, use insulin properly, or both. The exact cause of diabetes is not known, although both genetics and environmental factors appear to contribute to the development of the disease. Being overweight/obese and lack of exercise appear to play roles in the development of type 2 diabetes. Once a person develops diabetes, there is currently no cure. Diabetes must be managed through proper treatment in order to avoid complications. Who Has Diabetes? More than 18 million Americans have diabetes, and an estimated 95% of them suffer from type 2 while approximately 5% have type 1. The estimated 1 million Americans who have type 1 must treat their disease with insulin, but many patients with type 2 also require insulin to manage their diabetes. Diabetes affects older populations more frequently than younger populations. Why Is Diabetes an Important Concern for Policymakers? The number of Americans diagnosed with diabetes is increasing each year and the cost of care for patients with diabetes is growing. In 2002, approximately $132 billion was spent on the direct and indirect costs of diagnosed diabetes in the United States. 6 Given the dramatic annual increases in diabetes, escalating healthcare costs, and the uncalculated impact of undiagnosed diabetes, it is likely that this figure is now a significant underestimate of the current true costs of diabetes to the United States. As medical costs continue to rise, care of the diabetes patient population is increasingly important to policymakers. A recent study showed that 35% of the most costly Medicare beneficiaries had a diabetes diagnosis. 7 Diabetes is a leading cause of blindness, kidney failure, leg and foot amputations, cardiovascular disease, stroke, and deaths related to flu and pneumonia. Approximately half of the lifetime health costs for patients with diabetes are related to potentially preventable complications. 8 Why Is the New Medicare Drug Benefit Important to Beneficiaries with Diabetes? For the first time in Medicare s history, beneficiaries will have access to outpatient prescription drug coverage. Since approximately 85% of seniors over age 65 diagnosed with diabetes take outpatient prescription medications to treat their disease, the Medicare Part D drug benefit is a significant development, but only if formularies and cost-sharing do not impinge on patient access. State pharmacy The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 5

7 assistance programs and discount programs offered by drug manufacturers have reduced costs and provided access to medications for some seniors with diabetes, but Medicare Part D will provide a similar opportunity to all beneficiaries. Overview of the Medicare Part D Prescription Drug Benefit Cost-sharing Under the Medicare drug benefit, beneficiaries are responsible for a range of out-of-pocket costs depending on their incomes and assets. Most Medicare beneficiaries have fixed incomes and, therefore, cost-sharing considerations are important. In 2001, about 17% of Medicare beneficiaries had incomes below the federal poverty level (FPL) (defined in 2001 as $8,494 for an individual and $10,715 for couples) and about half of beneficiaries had incomes of 200% of FPL or below ($16,988 for an individual and $21,430 for couples). 9 Table 1: Income Status of the U.S. Elderly Population, 2003 Federal Poverty Level Income in 2003 for an Individual Percent of U.S. Elderly Below 100% $8,980 10% Up to 135% $12,123 10% Up to 150% $13,470 5% Up to 200% $17,960 14% Over 200% $22,450 61% Source: U.S. Census Bureau. Current Population Survey, Annual Social and Economic Supplement. As Table 1 shows, approximately 40% of the U.S. elderly population had an income of less than 200% of poverty in These seniors with less than $18,000 in annual income will be sensitive to the coinsurance, or portion of the cost of medication that they must pay. Medicare offers a minimum standard benefit to all beneficiaries, as outlined below in Table 2. Plans may alter certain aspects of the benefit design (e.g., use tiers rather than coinsurance) as long as the design provides benefits at least actuarially equivalent to, or richer than, the standard Medicare drug benefit. Table 2: Medicare Part D Standard Benefit Structure Monthly Premium ~$32.20 ($386 annually) Annual Deductible $250 Coinsurance* ($251-$2,250 drug expenses) 25% Coinsurance* ($2,251-$5,100 drug expenses) 100% (the Donut Hole ) Coinsurance* ($5,101+ drug expenses) 5% (catastrophic coverage) *coinsurance refers to the beneficiary s portion of the costs that they must pay The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 6

8 For low-income beneficiaries, there are additional subsidies including payment by Medicare of monthly premiums, annual deductibles, and most coinsurance (Table 3). Most low-income beneficiaries, including all dual eligibles, will only pay per prescription copayments of between $1 and $5. Table 3: Medicare Part D Low-Income Subsidies Beneficiary Income Premium Deductible Copay(s) Up to 100% FPL and a dual eligble None None $1 / $3 Up to 135% FPL (all other dual eligibles) None None $2 / $5 135%-140% FPL 25% of premium $50 15% of drug cost 140%-145% FPL 50% of premium $50 15% of drug cost 145%-150% FPL 75% of premium $50 15% of drug cost Formularies Under the Medicare drug benefit, plans will likely establish unique formularies, or lists of drugs that will be covered by the plan. Plans use formularies and other tools to manage drug costs. These tools include placing drugs into different cost tiers and creating financial incentives to use the drugs in preferred tiers, requiring step therapy, generic substitution, or placing prior authorization restrictions on certain drugs. Plans are required to create formularies with a pharmacy and therapeutics (P&T) committee, provide coverage for at least two drugs in each of 146 therapeutic classes, 10 and ensure the formulary design does not discourage certain beneficiaries from enrolling. The Centers for Medicare and Medicaid Services (CMS) will review all Medicare Part D plans formularies and must approve them in order for a plan to be awarded a contract to provide Part D services. CMS has stated its intention to ensure that plan formularies provide access to a broad range of medically appropriate drugs to treat all diseases. 11 Coverage of Diabetes Medications Plans are expected to cover one drug of each of the US Pharmacopeia (USP) key formulary drug types, in 146 recommended therapeutic categories. As Table 4 shows, plans have certain coverage requirements. Within the oral hypoglycemic pharmacologic class commonly used to treat diabetes, CMS expects plans to cover at least one drug from each of five key drug types within that class: alpha glucosidase inhibitors, biguanides, meglitinides, sulfonylureas, and thiazolidinediones. For insulin, plans are expected to cover at least one insulin of four types. Plans are expected to do this whether or not they use the USP Model Guidelines. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 7

9 Table 4: Part D Coverage of Diabetes Medications Therapeutic Category Blood Glucose Regulators Pharmacological Class (2 drugs required by law) Antihypoglycemics Hypoglycemics, Oral Insulins Formulary Key Drug Types (at least 1 from each type must be covered) Alpha Glucosidase Inhibitors Biguarides Meglitirides Sulfonylreas Thiazolidinediones Rapid-Acting Short-Acting Intermediate-Acting Long-Acting Until plan formularies are published, the impact of these coverage requirements on beneficiary access and quality of care is unknown. Appropriate care of patients with diabetes may be compromised if formularies do not provide adequate access to medications. ADA has recommended coverage of 14 drug classes, as show in Table 4A five oral anti-diabetic classes, five insulin classes, two 'new' classes of recently developed drugs which are not included in the USP guidelines, one ACE class, and one statin class. The USP did not include three of the five ADA-recommended classes (the peakless insulin and two new classes, GLP-Agonists and Amylin- Agonists). Close monitoring is necessary to ensure beneficiary access and care are not adversely affected. Table 4A: ADA Recommended Coverage of Diabetes Medications Therapeutic Category Pharmacological Class Formulary Key Drug Types Blood Glucose Regulators Antihypoglycemics Hypoglycemics, Oral Insulins Alpha Glucosidase Inhibitors Biguarides Meglitirides Sulfonylreas Thiazolidinediones Rapid-Acting Short-Acting Intermediate-Acting Long-Acting Peakless GLP-Agonists Amylin-Agonists The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 8

10 What Does the Part D Drug Benefit Mean to Beneficiaries with Diabetes? The Medicare prescription drug benefit will begin on January 1, 2006, and the initial enrollment period will begin on November 15, Since prescription drug therapy is the primary clinical management tool for the treatment of diabetes, access to drug coverage is important. While some younger patients diagnosed with type 2 diabetes can successfully control their disease with diet and exercise, most seniors diagnosed with diabetes are prescribed at least one anti-diabetic medication, in addition to an ACE Inhibitor and a statin, to manage the disease. The implications of the drug benefit are different depending on the level of coverage a beneficiary currently has. For Medicare beneficiaries currently without drug coverage, the Medicare drug benefit will provide much needed assistance with the costs of prescriptions. However, beneficiaries who currently have generous drug coverage (e.g., employer-provided retiree coverage or dual eligibles) may find themselves paying more under the Medicare drug benefit if they indeed choose it over their current alternative. Until plan offerings are unveiled and beneficiaries enroll, the impact of the benefit is unknown. Private drug plans will administer the drug benefit and have broad discretion in designing plan benefit structures to contain prescription drug costs, such as establishing formularies and tiered cost-sharing arrangements and requiring prior authorization for high-cost drugs. The details of individual prescription drug plan offerings will greatly affect Medicare beneficiaries spending experience. In addition to cost, access to medications may be quite different because the private drug plans that will administer the Medicare benefit have broad discretion in designing plan benefit structures and implementing cost-containment strategies. These costcontainment strategies are likely to pose challenges for Medicare beneficiaries with chronic diseases like diabetes, who are often taking multiple medications over a long period of time. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 9

11 Cost Sharing Under the Medicare Prescription Drug Benefit for Beneficiaries with Diabetes For the average Medicare beneficiary over age 65, successful control of diabetes requires medication therapy and self-monitoring. To determine the costs of the ADA-recommended comprehensive blood glucose management guidelines, the model includes the cost of: Angiotensin-converting Enzyme (ACE) Inhibitor and statin Blood glucose testing strips and lancets (used 3 times daily) Oral diabetes medications Insulin and syringes Building the Cost Model To account for variations in the prescription drugs taken by Medicare beneficiaries with diabetes, we created four patient profiles, each of which assumes a different treatment regimen as shown in Table 5. Table 5: Diabetes Treatment Regimens in the Avalere Model I II III IV Medications for Diabetes ACE Inhibitor Statin ACE Inhibitor Statin ACE Inhibitor Statin ACE Inhibitor Statin 1 Oral Medication 3 Oral Medications 1 Oral Medication and Long-Acting Insulin and Syringes Long-Acting and Short Acting Insulin and Syringes Diabetes Self Monitoring Blood glucose testing 3 times a day, using 3 lancets Blood glucose testing 3 times a day, using 3 lancets Blood glucose testing 3 times a day, using 3 lancets Blood glucose testing 3 times a day, using 3 lancets Based on best practice guidelines for improving cardiovascular outcomes, reducing lipid levels, and preventing or delaying complications related to diabetes, all Medicare beneficiaries in our model are prescribed an ACE inhibitor and statin as part of their pharmacological therapy. The costs of Lipitor and a generic ACE inhibitor (Enalapril) were calculated to simulate this likely patient experience. ADA recommends that people with diabetes self-monitor their blood glucose levels multiple times a day. Thus, we assumed that the beneficiaries in the model test their blood glucose with a monitor three times daily. Home blood glucose monitoring equipment and supplies, including blood glucose testing strips and lancets, currently are covered under Medicare Part B. Thus, the costs of blood glucose testing strips and lancets are reflected in the Medicare Part B costs included in our analysis. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 10

12 To reflect the Part B costs for home blood glucose monitoring, the model includes an estimated 2006 Part B premium of $88.50, $124 deductible, and coinsurance costs. The average cost of Part B supplies (lancets and blood glucose monitoring strips) was determined from the Medicare Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) fee schedule. We did not include the cost of a blood glucose monitor because it is usually a one-time cost. To model a beneficiary with diabetes typical treatment experience, standard diabetes medications were chosen. See Appendix for an explanatory note and medication list. The model provides an estimate of the likely costs of medications related to the treatment of diabetes, and thus does not capture all possible therapy scenarios. It is possible that beneficiaries with diabetes may have other prescription needs and could easily exceed our spending estimates because of treatments for related and unrelated illnesses and complications. Our cost estimate is in 2005 dollars and includes 2006 Part B and Part D coinsurance rates. The MMA mandates increases in Part D premiums and deductibles over the next ten years, and therefore we assume that these beneficiary costs will increase over time. In accordance with Congressional Budget Office (CBO) practice, we assumed a 20% discount 12 to determine the prescription drug price that will be charged to Medicare beneficiaries under Part D. At the time of this study, the formularies and purchase prices were not known. If plans are able to obtain discounts greater than the 20% that CBO assumed and we used, then it is possible that beneficiary out-of-pocket costs will be decreased. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 11

13 Beneficiary Experience with the Standard Part D Benefit Medicare beneficiaries with incomes over 150% of FPL, which in 2005 is $14,355 for an individual and $19,245 for a couple, face substantial out-of-pocket spending under Part D to adequately manage their diabetes. As shown in Table 6: Beneficiaries who are prescribed three oral anti-diabetic medications, an ACE inhibitor, and a statin will spend $2,244 per year under the standard Part D benefit. Since cost-sharing for this population is 25% of the first $2,250 of drug expenses, the cost of the medications is an important driver of the beneficiaries cost-sharing burden. Beneficiaries in the standard benefit are unlikely to fall into the gap or donut hole of 100% coinsurance. Table 6: Beneficiary with Diabetes Spending Under the Standard Part D Benefit (>150% of FPL) Diabetes Therapy Annual Beneficiary Out-of-Pocket Spending 1 Oral Medication 3 Oral Medications 1 Oral Medication and Insulin Insulin Only Part D premium $386 $386 $386 $386 Out-of-pocket spending for drugs (including deductible) $659 $2,244 $1,822 $1,215 Part B premium $1,062 $1,062 $1,062 $1,062 Part B coinsurance for strips and lancets (including deductible) $127 $127 $127 $127 Total beneficiary spending $2,234 $3,819 $3,397 $2,790 Total as a percent of income (for 150% of FPL) 12% 21% 18% 15% Based on best practice guidelines for improving cardiovascular outcomes, reducing lipid levels, and preventing or delaying complications related to diabetes, all Medicare beneficiaries in our model are prescribed an ACE inhibitor and statin as part of their pharmacological therapy. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 12

14 Dual Eligible Beneficiary with Income Less than 100% of FPL Dual-eligible beneficiaries have incomes of less than 100% of FPL, which in 2005 is $9,570 for an individual and $12,830 for a couple. Many dual eligibles under 100% of FPL will face similar cost sharing to what they do now. Table 7 shows that: Total spending is approximately 2% of income. Low-income beneficiaries will continue to receive Part B services without coinsurance. Table 7: Dual-Eligible Beneficiary with Diabetes Spending (<100% of FPL) Diabetes Therapy Annual Beneficiary Out-of-Pocket Spending 1 Oral Medication 3 Oral Medications 1 Oral Medication and Insulin Insulin Only Part D premium $0 $0 $0 $0 Out-of-pocket spending for drugs (including deductible) $108 $180 $180 $180 Part B premium $0 $0 $0 $0 Part B coinsurance for strips and lancets (including deductible) $0 $0 $0 $0 Total beneficiary spending $108 $180 $180 $180 Total as a percent of income (for 100% of FPL) 2% 2% 2% 2% Based on best practice guidelines for improving cardiovascular outcomes, reducing lipid levels, and preventing or delaying complications related to diabetes, all Medicare beneficiaries in our model are prescribed an ACE inhibitor and statin as part of their pharmacological therapy. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 13

15 Beneficiary with Income Less than 135% of FPL Medicare beneficiaries with incomes of less than 135% of FPL have incomes of less than $12,920 for an individual and less than $17,321 for a couple. Some of these beneficiaries medical costs (not drug costs) may currently be covered by Medicaid. Table 8 shows that: Cost sharing does not increase with increasing numbers of medications. Part B premium costs are a significant burden. Table 8: Low-Income Beneficiary with Diabetes Spending (101%-135% of FPL) Diabetes Therapy Annual Beneficiary Out-of-Pocket Spending 1 Oral Medication 3 Oral Medications 1 Oral Medication and Insulin Insulin Only Part D premium $0 $0 $0 $0 Out-of-pocket spending for drugs (including deductible) $108 $300 $300 $300 Part B premium $1,062 $1,062 $1,062 $1,062 Part B coinsurance for strips and lancets (including deductible) $152 $152 $152 $152 Total beneficiary spending $1,322 $1,514 $1,514 $1,514 Total as a percent of income (for 150% of FPL) 8% 9% 9% 9% * Research indicates that many low-income beneficiaries are not enrolled in Medicaid assistance programs that would cover Part B premiums. Our inclusion of the total cost of the premium reflects the experience of a majority of low-income beneficiaries. Based on best practice guidelines for improving cardiovascular outcomes, reducing lipid levels, and preventing or delaying complications related to diabetes, all Medicare beneficiaries in our model are prescribed an ACE inhibitor and statin as part of their pharmacological therapy. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 14

16 Beneficiary with Income Less than 150% of FPL Medicare beneficiaries with incomes less than 150% of FPL, which in 2005 is $14,355 for an individual and $19,245 for a couple, will experience a varying level of changes in expenditures when they enroll in Part D. This variance is based on whether the beneficiary currently has prescription drug coverage. Table 9 shows that: Beneficiaries currently without drug coverage will spend significantly less under Part D than they do now. Beneficiaries with generous coverage, including beneficiaries enrolled in certain state pharmacy assistance programs, may spend more under Part D than they do now. Table 9: Low-Income Beneficiary with Diabetes Spending (136%-150% of FPL) Diabetes Therapy Annual Beneficiary Out-of-Pocket Spending 1 Oral Medication 3 Oral Medications 1 Oral Medication and Insulin Insulin Only Part D premium $0-$386 $0-386 $0-386 $0-386 Out-of-pocket spending for drugs (including deductible) $334 $613 $549 $458 Part B premium $1,062 $1,062 $1,062 $1,062 Part B coinsurance for strips and lancets (including deductible) $181 $181 $181 $181 Total beneficiary spending $1,577- $1,963 $1,856- $2,242 $1,792- $2,178 $1,701- $2,087 Total as a percent of income 9%-11% 10%-12% 10%-12% 9%-11% Cost sharing by beneficiaries increases as their income level increases up to 150% of FPL. As shown in Graph 1 on page 20, it is important to note that beneficiaries whose income falls at just above 150% of FPL will spend a significantly greater proportion of their income than Part D enrollees who have either higher or lower incomes. Beneficiaries falling into this income level may, therefore, be more at risk of not being able to afford medications or of not complying fully with their treatment program, as their cost-sharing burden will be significant. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 15

17 Discussion of Key Findings Medicare beneficiaries with diabetes represent a large portion of the population eligible for the prescription drug benefit. In 2003, almost 14 million individuals of Medicare age (over 65) had diabetes, which is 39.4% of all Medicare beneficiaries over age 65 enrolled in Most beneficiaries over 65 with diabetes take medication to treat the disease insulin and/or oral anti-diabetics that will be covered under the Medicare prescription drug benefit. In 2003, 88.4% of individuals with diabetes ages took oral anti-diabetics and/or insulin; 86.1% of individuals with diabetes ages 75 and over took oral anti-diabetics and/or insulin. 14 Preventing Complications, Reducing the Costs to Medicare The significant prevalence of diabetes in the Medicare population and the high cost of treating preventable complications cannot be ignored. Major complications from poorly managed diabetes include: Amputations: Between 60-70% of patients with diabetes develop some form of peripheral nerve damage which, in severe forms, can lead to lower limb amputations. 82,000 people with diabetes have a foot or leg amputated annually. Blindness: Diabetic retinopathy is a complication of poorly controlled diabetes. For people between the ages of 20 and 74, diabetes is the leading cause of new blindness. Heart Disease and Stroke: Heart disease is the leading cause of death among people with diabetes. 65% of people with diabetes die of heart disease or stroke. Kidney Disease: Diabetic nephropathy is the leading cause of kidney failure (end-stage renal disease), accounting for almost half of all cases. People over 65 are twice as likely to be hospitalized for kidney infections as those without diabetes. In 2001, 142,963 people with diabetes underwent dialysis or kidney transplantation. The complications of diabetes are both physically debilitating and costly to patients and healthcare systems alike, but they are largely preventable. Maintaining good control of blood glucose levels is key to preventing complications in patients with diabetes. A vital component to achieving target blood glucose levels for people with both type 1 and type 2 diabetes is adherence to treatment regimens. By allowing Medicare beneficiaries with diabetes to access medications prescribed by their physicians to help control their diabetes, the Part D benefit can be a useful tool in preventing complications in the future. In addition to improving health outcomes for beneficiaries, actively preventing high-cost complications also serves to reduce costs to the Medicare program. The key to the success of the Part D program in improving health outcomes for beneficiaries with diabetes is to ensure that beneficiaries with diabetes have widespread The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 16

18 access to necessary medications. Part D formularies should be monitored closely to ensure that they are providing good access to diabetes treatments. By reducing costs, cost-containment strategies will benefit both the plans that offer the Medicare drug benefit and the Medicare beneficiaries with chronic diseases like diabetes. Lower costs are desired by beneficiaries, but attention must be paid that these strategies do not adversely affect access to appropriate medication. Out-of-pocket costs have been shown to lead to medication nonadherence, especially for older populations with limited incomes or patients with chronic diseases. The private drug plans that will administer the Medicare benefit have broad discretion in designing plan benefit structures and implementing cost-containment strategies, including multi-tiered formularies, prior authorization, and step therapy. While cost-containment strategies used by plans have the potential to translate into reduced costs to beneficiaries, many of the drugs that Medicare beneficiaries with diabetes take, including oral anti-diabetics, certain kinds of insulins, and certain cholesterol lowering medications, are not available as generics and thus are likely to have higher out-of-pocket exposure under the drug benefit. Higher cost sharing may lead to medication non-compliance putting beneficiaries with diabetes at increased risk for complications from the disease. Effect of Cost-sharing on Medication Adherence Medication adherence is essential to the management of any chronic condition, but cost-sharing obligations can have a negative effect. Increased patient cost-sharing for drugs has been found to decrease the appropriate use of medications and lead to non-compliance with prescribed treatments. 15 Patients with chronic conditions are particularly at risk for medication nonadherence due to cost-sharing obligations because they are often taking multiple medications and also burdened by cost-sharing responsibilities for their ongoing medical care. If a patient discontinues taking a medication or even misses a few doses, there can be harmful short- and long-term consequences. Patients with diabetes are particularly vulnerable to not complying with their medication regimen because, for the majority of people with diabetes, failure to take prescribed medications does not result in immediate acute incidences. Thus, policymakers and patients themselves may not consider this disease as serious as the other conditions which may seem more serious or acute. However, proper management of diabetes is necessary to prevent the illness from progressing into more debilitating (and quite costly) consequences such as blindness, amputation, and end-stage renal disease. Because of the delayed effects of noncompliance, patients may not adhere to their treatment regimen when cost-sharing responsibilities are too demanding, thereby putting a larger burden on Medicare and Medicaid in future years. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 17

19 It is unlikely that the cost of diabetes medications alone will cause beneficiaries to reach the 100% co-insurance gap or donut hole where patients will be responsible for the full cost of their medications, regardless of beneficiary income level. However, many beneficiaries with diabetes require medications in addition to oral anti-diabetics and/or insulin for conditions caused or exacerbated by their diabetic condition and complications. These beneficiaries will be more likely to reach the donut hole. The total amount of cost-sharing for Medicare beneficiaries with diabetes varies widely depending on the number and type of medications prescribed, but it is unlikely that the costs of diabetes medications alone will cause beneficiaries to reach the 100% co-insurance gap or donut hole where they would have to pay the full price of their medications out of pocket. The 25% beneficiary payment responsibility for the first $2,250 of drug expenses creates a significant incentive for seniors to monitor their medication use. For example, cost-conscious patients may switch to generic medications, which cost significantly less. Or, these patients may simply not fill prescriptions that they do not believe are necessary. Cost sharing under the prescription drug benefit for beneficiaries with diabetes will be most burdensome for low-income seniors who are near-poor but not poor enough to qualify for subsidies. Dual eligible beneficiaries and seniors with higher incomes may not be as severely impacted as the near-poor. Dual eligible beneficiaries will experience similar (limited) cost-sharing to what they do now with joint Medicare and Medicaid coverage, but this situation must be carefully monitored as the benefit is implemented. All state Medicaid programs are different, but it is generally true that many dual eligibles currently face some cost sharing for their prescriptions covered by Medicaid. States are permitted to charge beneficiaries nominal cost sharing, which means $0.50 to $3 per prescription, depending on the cost to the state. As of March 2005, 41 states charged a co-payment for prescription drugs. Some states have differential co-pays for generics/preferred drugs and non-preferred drugs. Thus, many duals under 100% FPL will probably face similar cost sharing to what they do now, although in some states, beneficiaries will be paying new co-pays. The key issues for duals in Part D are likely to be coverage and mandatory co-pays, rather than the actual cost-sharing amount. In Medicaid, pharmacists must dispense the drug to a beneficiary, regardless of whether he or she can afford the co-payment. Under Part D, pharmacists will be able to deny beneficiaries the drug if they are unable to pay the co-payment amount. It is unknown how strictly pharmacies will enforce collection of co-payments (they may waive them for low-income individuals if they so choose). In addition, duals will face potentially restrictive formularies under Part D, which may mean that beneficiaries will have to switch the drugs they are taking. Under Medicaid, states must cover all drugs for which manufacturers pay the federal rebate. Some states make it more difficult to access certain drugs by The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 18

20 creating a preferred drug list (PDL) and requiring prior authorization, which encourages beneficiaries to take certain drugs over others in exchange for additional discounts from manufacturers. However, PDLs do not exist in all states, and the exceptions process for PDLs tend not to be stringent. Duals will likely face much more restrictive formularies under Part D and/or may have to change their drug regimens. For example, beneficiaries likely will need to pursue more exceptions and appeals to obtain certain medications under Part D and will have higher cost sharing for certain drugs under Part D formularies. The experience of low-income beneficiaries may not be uniform. Those beneficiaries currently without coverage will spend significantly less; those enrolled in a state pharmacy assistance program may spend more. The main drivers of these significant differences in experience will be whether or not the beneficiary previously had access to coverage and his or her previous expenditures. In 2005, almost 60% of beneficiaries are projected to have no or relatively low ($750 or less) out-of-pocket drug expenses, while at the upper end of spending, 7% of beneficiaries are projected to have out-of-pocket drug costs of more than $3, In addition, low-income beneficiaries who require insulin may for the first time be required to pay a nominal cost-sharing fee for their syringes. This cost may be burdensome to some beneficiaries. Higher-income beneficiaries with incomes slightly greater than 150% of FPL who take three diabetes medications, a statin, and an ACE inhibitor will spend more than 21% of their income on those five prescription drugs and Medicare Part B premiums and services annually. As Graph 1 shows, the burden of out-of-pocket spending for beneficiaries with diabetes is significant for those lower-income (151%-190% of FPL) or near-poor seniors (101%-150%) who are not poor enough to qualify for subsidies. Policymakers must be made aware of the potentially negative impact this cost-sharing burden will have on these seniors. MMA mandates increases in premiums and deductibles over the next ten years, and therefore it is likely that these beneficiary expenditures will increase in the future. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 19

21 Graph 1: Beneficiary Out-of-Pocket Spending for Diabetes Care as a Percentage of Income 25% 20% 15% 10% 5% 3 Orals 1 Oral + Insulin Insulin Only 1 Oral 0% <100% <135% <150% 150% 200% 250% > 300% Monitoring access to care for beneficiaries with diabetes is critical given the size of the Medicare diabetes patient population, the chronic nature of diabetes and high risk for complications, and the fact that most diabetes treatments will be covered by Medicare for the first time under the prescription drug benefit. In 2002, average out-of-pocket hospital costs per individual with diabetes, age 65 and over, were $ Average 2002 out-of-pocket physician office visit costs per individual with diabetes, age 65 and over, were $ Other Part B costs incurred by beneficiaries with diabetes include out-of-pocket costs for home health and hospice visits. Our analysis highlights the significant burden that low-income Medicare beneficiaries face for selfmonitoring their blood glucose. While clinicians agree that this is of particular importance to insulindependent patients with diabetes, it is clear that the high spending required of beneficiaries may prevent them from following this best practice. Since the Medicare prescription drug benefit does not change the coverage of blood glucose monitoring supplies (strips and lancets) from Part B, lower-income beneficiaries will continue to struggle with these costs. Medicare Part B provides physician services in addition to access to durable medical equipment like blood glucose monitoring strips and the lancets used to draw blood for self-testing. For beneficiaries with The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 20

22 diabetes, access to physician services and thus Part B is essential. But for many patients the inconvenience of self-monitoring blood glucose, in addition to the added expense, results in non-adherence to this important aspect of diabetes management. Twice-a-year screenings for diabetes were included as a new Medicare benefit with the passage of the MMA. This new service may provide physicians with another opportunity to help patients understand the importance of monitoring their blood glucose. The diabetes community has continued to raise awareness of this issue, but less burdensome cost-sharing might provide these cost-conscious seniors with even more incentive. Conclusion The new Medicare prescription drug benefit takes effect on January 1, For the first time, Medicare beneficiaries, including those with diabetes, will receive prescription drug coverage through the Medicare program. The new drug benefit holds the potential to help many beneficiaries with diabetes access their necessary medications more readily. While the Medicare prescription drug benefit represents a significant opportunity for Medicare beneficiaries with diabetes, Part D plan structure and administration of the benefit could pose new challenges for beneficiaries as well. Analysis of the new prescription drug benefit reveals that certain Medicare beneficiaries with diabetes are particularly vulnerable under the standard Part D prescription drug benefit. Near poor beneficiaries who are ineligible for subsidies but whose incomes are limited will still have significant out-of-pocket costs under the Part D benefit. While beneficiaries in other income ranges may spend from 2% to 10% of their income on out-of-pocket healthcare expenses (Part B and D premiums, prescription co-payments, and Part B supplies and services), beneficiaries whose incomes are at or just above 150% of FPL may need to spend up to 21% of their annual income on their diabetes medications under Part D. Special attention must be paid to beneficiaries with incomes of 101%-150% of FPL to assess whether or not the Medicare prescription drug benefit is too costly for them to use to obtain their medications. Noncompliance with diabetes treatment can and does lead to debilitating and costly complications. Amputations, blindness, kidney disease, cardiovascular disease, and stroke are among the major complications of poorly managed diabetes. These complications create burdens for the beneficiary, the Medicare program, and society as a whole. Finally, even beneficiaries with diabetes whose out-of-pocket costs are relatively low under Part D (including beneficiaries eligible for subsidies and higher-income beneficiaries) could face new barriers to obtain their medications under Part D. The use of formularies and utilization management tools such as prior authorization and step therapy could create barriers for some beneficiaries with diabetes to obtain their medications under Part D. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 21

23 Further analysis of the prescription drug benefit should be conducted upon release of the individual plans formularies. At that time, more detailed information on actual rather than estimated drug costs can be examined. Based on the tier placement of diabetes medications as well as other beneficiary cost-sharing responsibilities, the true financial impact on individual beneficiaries with diabetes can be assessed. The new Medicare prescription drug benefit was created to provide beneficiaries with affordable prescription drug coverage so they can be compliant with their treatments and enjoy better health. This goal is particularly important for beneficiaries with chronic diseases such as diabetes. It is essential that the new benefit is monitored closely after its implementation to confirm that, in practice, it achieves its desired goal. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 22

24 Appendix Study Methodology Of the number of diabetes medications available, we chose four commonly prescribed regimes for Medicare patients. Other possible regimens will be more or less costly and used more or less frequently. In order to capture the full spectrum of potential patient experiences, we examined the four regimens outlined in Table 10. Most drugs currently available for management of type 2 diabetes fall into two categories: those that increase insulin supply (sulfonylureas and insulin) and those that decrease insulin resistance or improve its effectiveness (biguanides, thiazolidinediones). Based on American Association of Clinical Endocrinologists (AACE) medical guidelines for the management of diabetes and an examination of 2004 sales history, we identified four likely drug regimens for Medicare beneficiaries diagnosed with diabetes. Our analysis determined what Medicare beneficiaries with standard Part D coverage will spend when following the best practices baseline of an ACE inhibitor, a statin, and three times daily blood glucose self-monitoring, which were included for each drug regimen in our cost model. Average Wholesale Price (AWP) for specific medications was determined using the 2005 Red Book. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 23

25 Table 10: 4 Common Drug Regimens for People With Diabetes Treatment Regimen Prescriptions Reasoning 1 Oral Medication metformin When people with diabetes are prescribed 1 oral medication, it is most often metformin, a generic drug which reduces blood glucose by enhancing cell response to insulin. Metformin is a relatively inexpensive medication, and the usual treatment is 1,000 mg twice a day. 3 Oral Medications Actos Amaryl Diabeta Even with drug treatment, type 2 diabetes is a progressive disease with increasing hyperglycemia, or abnormally high levels of glucose in the blood. One study found that, after 3 years of therapy, 50% of patients need a second anti-diabetic drug; after 9 years, the proportion increases to 75%. A recent survey of endocrinologists found that 90% prescribe three or more agents in combination to achieve control of diabetes. When a person with diabetes is unable to achieve glycemic control with one oral medication, they should be prescribed additional medications. It is common for people with diabetes to take Actos, Amaryl and Diabeta. This combination of a thiazolidinedione and 2 sulfonylureas, respectively, increases insulin supply and decreases insulin resistance. 1 Oral Medication and Insulin Actos Lantus When a patient with type 2 diabetes is unable to achieve optimal levels of blood glucose control on oral medications alone, a combination therapy of oral medications and insulin is often initiated. One such regimen is Actos, a thiazolindinedione, and Lantus (glargine), an ultra-long-acting insulin analog. 19 Insulin glargine is often the insulin of choice when initiating combination therapy in patients with long-standing type 2 diabetes since it works steadily over a 24-hour period and therefore tends not to cause hypoglycemia (low blood sugar) in patients. In addition, thiazolidinediones decrease insulin resistance and increase insulin sensitivity. There are many combinations of oral medications and insulin that can be prescribed to help patients with type 2 diabetes better control their disease. This combination was chosen as an example in our model as it is indicated for older patients, such as Medicare beneficiaries, to illustrate how their drug spending under the Part D benefit may look. The Impact of the Medicare Prescription Drug Benefit on Beneficiaries with Diabetes 24