Pricey drugs strain Medicare by boosting ‘catastrophic’ spending

WASHINGTON — A safeguard for Medicare beneficiaries has become a way for drugmakers to get paid billions of dollars for pricey medications at taxpayer expense, government numbers show.

The cost of Medicare’s “catastrophic” prescription coverage jumped by 85 percent in three years, from $27.7 billion in 2013 to $51.3 billion in 2015, according to the program’s number-crunching Office of the Actuary.

Out of some 2,750 drugs covered by Medicare’s Part D benefit, two pills for hepatitis C infection — Harvoni and Sovaldi — accounted for nearly $7.5 billion in catastrophic drug costs in 2015.

The pharmaceutical industry questions the numbers, saying they overstate costs because they don’t factor in manufacturer rebates. However, rebates are not publicly disclosed. Sen. Charles Grassley, RIowa, is calling the rise in spending “alarming.”

Medicare’s catastrophic coverage was designed to protect seniors with multiple chronic conditions from the cumulatively high costs of taking many different pills. Beneficiaries pay 5 percent after they have spent $4,850 of their own money. With some drugs now costing more than $1,000 per pill, that threshold can be crossed quickly.

Lawmakers who created Part D in 2003 also hoped added protection would entice insurers to participate in the program. Medicare pays 80 percent of the cost of drugs above a catastrophic threshold that combines spending by the beneficiary and the insurer. That means taxpayers, not insurers, bear the exposure for the most expensive patients.

Catastrophic spending accounts for a fast-growing share of Medicare’s drug costs, which totaled nearly $137 billion in 2015. The catastrophic share was 37 percent, yet only about 9 percent of beneficiaries reached the threshold for such costs. For those patients, average spending jumped by 46 percent, from $9,666 in 2013 to $14,100 in 2015.

“If the numbers continue to increase like this each year, I worry about how much the taxpayers could afford,” said Grassley, who plans to ask Medicare for explanations.

“It may be that some drug companies are taking advantage of government programs to maximize their market share, and we need to know whether that’s the case,” he added.

Catastrophic coverage will soon cost as much as the entire prescription program did when it launched, said Sen. Ron Wyden, D-Ore. “Congress can’t continue to stand idle.”

Experts say the rapid rise in spending for pricey drugs threatens to make the popular prescription benefit financially unsustainable.

Nonpartisan congressional advisers at the Medicare Payment Advisory Commission have called for an overhaul. The presidential candidates, as well as the Obama administration, have proposed giving Medicare legal authority to negotiate prices.

The drug industry says Medicare patients are getting valuable, innovative medicines.

Lisa Joldersma, policy vice president for the Pharmaceutical Research and Manufacturers of America, also questioned the cost numbers. “I would push back on the notion that taxpayers are bearing 80 percent of the risk here because the numbers do not reflect rebates,” she said.

Rebates for individual drugs are not disclosed. They averaged nearly 13 percent across the entire program in 2013, according to government figures, and were estimated at about 17 percent for 2015.