Magazine article Drug Topics

The Impact of Part D on Manufacturers

Magazine article Drug Topics

The Impact of Part D on Manufacturers

Article excerpt

It is probably safe to say that pharmaceutical manufacturers as a group approached the implementation of Medicare Part D with mixed feelings. Although the benefit is seen as likely to increase access to medication among those eligible, large government programs run the risk of concentrating purchasing power, thereby lowering prices and decreasing profits over time. Early indicators remain mixed.

Medicare beneficiaries currently receive more than three million prescriptions every day. Part D will shift spending from Medicaid and the private sector to make Medicare the largest prescription drug purchaser in the country. Medicare spending will grow from 2% of prescription drug expenditures in 2005 to 27% of the total for 2006, and is projected to rise to 37% by 2010.

Reducing the out-of-pocket cost of drugs will encourage higher consumption. A study released by PhRMA in October 2006 tracked a group of people who made cash payments for prescriptions in 2005 and transitioned to Part D in 2006. The average number of prescriptions per month increased from 2.5 to four when Part D coverage was instituted, while the average outof-pocket expense decreased from $59 to $29 per person. The number of distinct drugs used over a threemonth period increased from 2.8 to 4.1 in parallel with the increase in the number of prescriptions.

Increases in use were uniformly distributed among younger and older beneficiaries, and the number of Rxs for treating chronic conditions rose. While increased access to necessary drugs is a desired outcome, it undoubtedly brings the use of higher-cost drugs with limited added value.

At the same time, the extent of generic drug use has surprised Medicare administrators. Data from the first two quarters of 2006 showed generic usage among all types of Part D plans at 60.1% compared with 51.9% among payers nationally. Part D plans increased the growth rate of generic utilization up to three times faster than the overall market. Medicare Advantage plans that include drug coverage displayed the highest generic utilization rates, likely due to their previous experience with Medicare enrollees and coordination of their benefits.

Drug prices are being closely monitored by stakeholder groups. AARP's quarterly wholesale price report for the first quarter of 2006 found an average 3.9% increase in the cost of 193 Rx drugs commonly used by seniors. Of these, the prices of 63 drugs on the list increased by more than 5%. …

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