Question

How did Congress devise the Medicare D drug benefit? Would you have designed it in that way? What would you have done differently and why? Should physicians be allowed to purchase their own imaging equipment? Why or why not?

Answer 1

The Medicare Prescription Drug, Improvement, and Modernization Act represents the most significant expansion of the Medicare program in almost 40 years. The law created Medicare Part D, a voluntary prescription drug benefit to be implemented in 2006. A primary goal of Part D is to increase access to medications for seniors and Medicare enrollees with disabilities, particularly those with low incomes and/or catastrophic drug expenses.When the Medicare Part D program was created in 2003, Congress required all Part D plan sponsors typically insurance companies and pharmacy benefit managers to establish a standard benefits package with four phases of coverage that beneficiaries move through depending on their drug spending. In the first phase, the federal government covers100 percent of cost-sharing until beneficiaries reach their deductible. In the second phase, the federal government covers 25 percent of cost-sharing. In the third phase, known as the coverage gap or donut hole, beneficiaries pay all drug costs out of pocket. In the final phase, catastrophic coverage is reached and beneficiaries cover just 5 percent of cost-sharing.

The number of beneficiaries needs to spend out of pocket before reaching catastrophic coverage is called the TrOOP (“True Out-of-Pocket) threshold; it was $5,000 in 2018. The TrOOP threshold increases each year to account for growth in Medicare per-beneficiary spending under Part D, which includes prescription drug prices.

As part of the Affordable Care Act (ACA), Congress included two changes to Part D to help fill the donut hole. First, Congress established the Part D Coverage Gap Discount Program that requires participating drug manufacturers and Part D plan sponsors to give beneficiaries price discounts on brand-name drugs when beneficiaries reach the coverage gap. Between 2011 and 2020, this program reduces beneficiary cost-sharing in the gap from 100 percent to 25 percent. The discounts were phased in and scheduled to fill the coverage gap by 2020.

Second, Congress slowed the annual update to the TrOOP threshold through 2019 by basing the update on the consumer price index (CPI) plus 2 percentage points rather than drug spending growth. The purpose was to give certainty to the size of the donut hole during the phase-in of the manufacturer discount program. Because the CPI has grown far less rapidly than drug prices under Part D, this change has kept the size of the donut hole smaller, enabling beneficiaries to reach the catastrophic benefit sooner than they would have under the original Part D benefit. This also helps manufacturers, who don’t have to offer as many discounts when people are in the coverage gap for a shorter period of time. And once the federal government is covering more costs under catastrophic coverage, manufacturers no longer have to provide discounts at all.

Should physicians be allowed to purchase their own imaging equipment? Why or why not?

Critics, including Jean Mitchell, a health economist at Georgetown University, say such self-referrals fatten physician profits – leading to excess tests and higher Medicare spending – and should be banned. Supporters, such as Finkenberg, say the tests are too important to outsource. He insists his practice isn’t ordering more tests now, and says the MRI “is the perfect diagnostic tool for us. We can’t afford to miss a diagnosis for our patient and for our malpractice costs.”

Now Congress has sneaked into the argument. Under the new health care overhaul law, doctors who refer Medicare and Medicaid patients to in-house imaging machines must disclose in writing that they own the equipment. They’ll also have to tell their patients they can get the services elsewhere, and provide a list of 10 alternative sites within 25 miles. The rule takes effect next year.