Creativity Shapes the Complexity of Part D Benefit Design

The question was recently posed on a social website as to “why some PDPs have no incentives for mail order and why some PDPs have bizarre generic tiers?”  Although the question was specific to Oregon Medicare Prescription Drug Plans (PDP), it can be extrapolated nationwide. There are a variety of dynamics in play in the benefit design for PDPs, as well as MA-PDs, that have a significant impact on the complexity of the Part D Benefit offering.  In considering the question, I have listed several possible reasons for the lack of mail-order incentives and the “bizarre generic tiers.”
First, the national benchmark for the Part D benefit premium has decreased for the third consecutive year as the market has become more competitive, while the pharmaceutical inflation rate continues to raise approximately twice the national rate at 9.2% in 2011 and predicted to be 8.3% in 2012. Plans compensate for the increase by shifting to higher member cost-share using more tiering options, a broader range of copays, and more preferred tiers. CMS is allowing six tiers in 2012, allowing for both preferred brand and generic tiers. Utilization costs can be managed effectively by applying lower cost-sharing to more cost-effective therapies.
Next, Generic approvals are changing the landscape as many blockbuster drugs are moving off patent and becoming available in generic versions. Lipitor, Lexapro, and Zyprexa as well as other drugs representing over $1 Billion in sales either have or will become available over the next year. In many cases, however, the generic pricing is not much different than the brand name versions. As generics, they move to generic cost-sharing tiers, often actually increasing the cost to the plan. As a result the non-preferred generic tier is born with increased member cost sharing.
Next, the Specialty Drug Industry is a $40 billion industry  involving more than 600 specialty pharmaceuticals currently under development in a market that is expected to top $160 billion by 2013. Management of this drug class is a challenge faced by every health plan. One of the tools applied to the management of specialty drugs is using cost-share tiers. Percentage based tiers are often applied to shield the risk.
Finally, Medicare Plan Rating incentives for MA-PDs achieving a five star rating are significant. Nine Five-Star Plans earned in excess of $4 billion in bonus payments for 2012 Plan Ratings. Starting in January, plans with three stars or better will get bonuses of 3 to 5 percent of their total Medicare payments. Five-star plans also can market to and enroll members year-round, while all other plans enrollment is limited to Medicare’s annual open period. Member satisfaction plays a substantial role in those ratings. Part D Plan ratings look at factors such as access to prescriptions. Excessive step therapy and prior authorization requirements are member dissatifiers. By reducing restriction but increasing cost-sharing, members encounter less delay at point of purchase. Savings available by switching to a less costly therapy is also a satisfier.
Mail-Order service is on the decline as more and more plans are offering “mail-order at retail.” When given the choice, the vast majority of Medicare Beneficiaries prefer to use their local retail pharmacies according to numerous studies. Although Medicare requires that an extended day’s supply is available at retail, there was a cost saving advantage for using mail-order. As plans level the playing field, members seeking extended prescription supplies opt to use retail pharmacies. Again, increased member satisfaction results in better plan ratings and member retention.
Although there may be many other explanations, I believe these are some key reasons explaining the variation in plan design. Creativity and informatics continue to play a huge role in the delivery of high quality, cost-effective healthcare to Medicare Beneficiaries.