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Most Seniors Using Specialty-Tier Drugs Hit Hard by 'Doughnut Hole'

By John Reichard, CQ HealthBeat Editor

March 1, 2010 -- The Government Accountability Office released a report Monday saying that 55 percent of Medicare enrollees taking at least one of a category of high-cost pharmaceuticals known as "specialty tier" drugs reached what Medicare considers to be "catastrophic" levels of out-of-pocket drug spending.

Pete Stark, D-Calif., Chairman of the House Ways and Means Committee's Health Subcommittee, released a statement saying that the best way to help these seniors is for Congress to fill the "doughnut hole" in Medicare prescription drug coverage, in which patients must pay 100 percent of their pharmaceutical costs.

The House-passed drug overhaul bill (HR 3962) and the package of overhaul revisions recommended by President Obama would fill the doughnut hole.

Prescription drug plans in the Medicare program can assign drugs to different tiers of coverage, with out-of-pocket costs varying by tier. Thus, to encourage the use of lower-cost generic drugs, a plan sponsor might have a tier with generic drugs that charges a lower out-of-pocket charge than it does for a tier with more costly, brand-name drugs.

The Centers for Medicare and Medicaid Services also allows plans to establish a specialty tier when the total monthly cost of a drug exceeds a specified amount, set by CMS as $600 per month in 2010. Drugs eligible for the specialty tier are not necessarily the same as "specialty drugs," although the two groups do overlap. Specialty drugs treat complex conditions and require special handling, while a specialty-tier drug is simply one that exceeds the cost threshold.

Medicare enrollees who use specialty-tier drugs typically face much higher out-of-pocket charges.

"Among all beneficiaries who used at least one specialty-tier-eligible drug in 2007, 55 percent reached the catastrophic coverage threshold, after which Medicare pays at least 80 percent of all drug costs," the GAO reported. "In contrast, only 8 percent of all Part D beneficiaries who did not use a specialty-tier-eligible drug reached this threshold in 2007."

Prices negotiated by plans for specialty-tier drugs are rising quickly — by an average of 36 percent over the past three years, Stark said, citing the GAO report. For example, the report found that the average negotiated price for the breast cancer drug Gleevec increased 46 percent between 2006 and 2009, from about $31,200 per year to about $45,500 yearly.

Stark said that the health care overhaul should ensure that the federal government, as the biggest purchaser, gets the best price for specialty-tier drugs. Critics say that expanding the government's negotiating power would lessen industry research and development, among other ills.

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