Study identifies flaws in Medicare prescription drug program

October 28, 2010, Massachusetts General Hospital

Millions of Medicare recipients have been forcibly reassigned to different prescription drug plans because Part D reimbursements to insurance companies covering low-income patients are lower than the actual costs incurred, according to a study released online today by Health Affairs. The report describes how a system designed to encourage competition and to subsidize care for low-income Medicare patients instead has led companies to raise their premiums in an effort to price themselves out of the low-income segment of the Part D market.

"These insufficient payments create a perverse incentive for plans to avoid or shed low-income ," says John Hsu, MD, of the Mongan Institute for Health Policy (IHP) at Massachusetts General Hospital (MGH), lead author of the study. "Millions of our poorest elderly have been reassigned to different drug plans since the program began. These patients often have limited income and multiple medical conditions requiring several medications, so they can ill afford the turmoil associated with changing drug plans."

Medicare Part D prospectively pays private insurance companies to provide prescription drug coverage. That payment is risk-adjusted based on each patient's diagnoses during the prior year. Most Medicare patients choose their own Part D plan from available options and pay an individual premium in addition to the amount paid by Medicare. For low-income patients, Medicare fully or partially subsidizes premiums and copayments and also assigns these patients to one of the least expensive available plans. Low-income patients tend to need more , so Medicare's payments to the companies are increased by 8 percent for fully subsidized patients and 5 percent for partially subsidized patients.

Hsu explains, "The original hope was that private plans would compete for all Medicare patients by lowering premiums or at least limiting premium increases. The lower-cost plans would benefit by attracting more patients overall and also by receiving generous subsidies for covering many low-income patients. Unfortunately, this hope has not become reality. Instead, the system induces companies to play 'hot potato' with the poorest of our elderly."

The study analyzed actual prescription costs for millions of patients enrolled in a selection of Part D plans. Results showed that the costs for covering fully subsidized patients were 21 percent higher than for nonsubsidized patients, and costs for partially subsidized patients were 9 percent higher – significantly more than the current payment increases of 8 and 5 percent, respectively. The researchers note that these discrepancies probably explain why each year fewer companies keep premiums low enough to stay in the subsidized, low-income market. Being assigned to a different plan may require changes to patients' drug regimens, since plans often cover different drugs for specific health problems, and require patients to learn a new system for obtaining their drugs.

"According to these findings, the Part D prospective payment should be revised to fix these perverse incentives," says Hsu, who is the director of the Clinical Economics and Policy Analysis Program at the Mongan IHP and on the faculty at Harvard Medical School. "This could be accomplished by increasing the subsidies for covering low-income patients or by improving the risk adjustment approach by, for example, incorporating information on prior drug use. But no matter what approach is taken, it is critical that there is careful monitoring of the actual incentives and of both intended and unintended consequences. This is true for Part D, as well as for the programs envisioned within the Patient Protection and Affordable Care Act."

Related Stories

Recommended for you

Sleep better, lose weight?

January 17, 2018
(HealthDay)—Sleeplessness could cost you when it's time to stand on your bathroom scale, a new British study suggests.

Who uses phone apps to track sleep habits? Mostly the healthy and wealthy in US

January 16, 2018
The profile of most Americans who use popular mobile phone apps that track sleep habits is that they are relatively affluent, claim to eat well, and say they are in good health, even if some of them tend to smoke.

Improvements in mortality rates are slowed by rise in obesity in the United States

January 15, 2018
With countless medical advances and efforts to curb smoking, one might expect that life expectancy in the United States would improve. Yet according to recent studies, there's been a reduction in the rate of improvement in ...

Teens likely to crave junk food after watching TV ads

January 15, 2018
Teenagers who watch more than three hours of commercial TV a day are more likely to eat hundreds of extra junk food snacks, according to a report by Cancer Research UK.

Can muesli help against arthritis?

January 15, 2018
It is well known that healthy eating increases a general sense of wellbeing. Researchers at Friedrich-Alexander-Universität Erlangen-Nürnberg (FAU) have now discovered that a fibre-rich diet can have a positive influence ...

Your dishwasher is not as sterile as you think

January 13, 2018
(HealthDay)—Your dishwasher may get those plates spotless, but it is also probably teeming with bacteria and fungus, a new study suggests.

2 comments

Adjust slider to filter visible comments by rank

Display comments: newest first

Bob_B
not rated yet Oct 28, 2010
Now that corporations are "people" can't they be found to be insane? Can't they be judged as performing actions that cause harm to others?

If not why are real people subject to these same issues?
VOR
not rated yet Oct 28, 2010
we will NEVER take the best care of each other well until we take the profit out of healthcare. What SO many ignorant and/or greedy/selfish people preach is that somehow it works to put profits before health. Well its doesnt, it hasnt, and it wont. Some things actually only work when socialized (properly). Capitalism is fine for making clothes for example, but not drugs or health insurance. Some things are more important. You can find this problem expressing itself again and again in different but all significant ways throughout the healthcare system.

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.