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entitled 'Medicare Part D Coverage Gap: Discount Program Effects and 
Brand-Name Drug Price Trends' which was released on October 26, 2012. 

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United States Government Accountability Office:
GAO: 

Report to Congressional Requesters: 

September 2012: 

Medicare Part D Coverage Gap: 

Discount Program Effects and Brand-Name Drug Price Trends: 

GAO-12-914: 

GAO Highlights: 

Highlights of GAO-12-914, a report to congressional requesters. 

Why GAO Did This Study: 

The Patient Protection and Affordable Care Act of 2010 established the 
Discount Program to help Medicare Part D beneficiaries with their 
prescription drug costs while in the coverage gap, which occurs 
between the initial and catastrophic coverage periods where Medicare 
helps pay for drug costs. Until the Discount Program began in 2011, 
beneficiaries in the coverage gap paid 100 percent of drug costs. The 
Discount Program required manufacturers to provide a 50 percent 
discount on the price of brand-name drugs for beneficiaries in the gap. 

GAO was asked to describe (1) CMS’s oversight of the Discount Program; 
(2) perspectives of plan sponsors, manufacturers, and PBMs on effects 
of the Discount Program; and (3) how prices for brand-name drugs used 
by beneficiaries in the coverage gap and by those who did not reach 
the gap changed before and after the start of the Discount Program. To 
describe CMS’s oversight, GAO reviewed CMS documents and interviewed 
CMS officials. To describe perspectives on the effects of the Discount 
Program, GAO interviewed the 7 largest Part D plan sponsors based on 
enrollment data, 8 of 10 manufacturers of brand-name drugs with the 
highest expenditures in the gap, and 3 PBMs who contracted with 
sponsors GAO interviewed. To describe price changes, GAO used CMS Part 
D data from 2007 to 2011 to track prices for high-expenditure brand-
name drugs used by those in and those who did not reach the gap. GAO 
compared prices for the two baskets because drugs used by those in the 
gap may be more susceptible to price increases since manufacturers 
must provide the discount for these drugs. 

What GAO Found: 

As part of Medicare’s Part D Coverage Gap Discount Program (Discount 
Program), the Centers for Medicare & Medicaid Services (CMS), located 
within the Department of Health and Human Services (HHS), oversees the 
provision of discounts by plan sponsors to eligible beneficiaries when 
they purchase brand-name drugs and monitors that discounts are paid 
for by drug manufacturers. CMS checks prescription drug data to verify 
that sponsors provide accurate discounts at the point-of-sale to 
eligible beneficiaries in the coverage gap. These checks include 
verifying whether a beneficiary has reached the coverage gap and that 
the plan sponsor has calculated the discount amount correctly. CMS 
also tracks that manufacturers pay plan sponsors for the discounts 
sponsors have provided to beneficiaries and has implemented a dispute 
resolution process for manufacturers disputing discount payment 
amounts. CMS also performs other activities such as monitoring 
beneficiary complaints related to the program. 

The plan sponsors, pharmacy benefit managers (PBM) that negotiate on 
behalf of plan sponsors, and drug manufacturers GAO interviewed had 
different perspectives on aspects of the drug pricing and plan design 
effects of the Discount Program. Most sponsors and PBMs believed the 
Discount Program may have been a contributing factor in the rising 
prices of some brand-name drugs by some manufacturers. However, most 
manufacturers did not believe the Discount Program affected drug 
prices they negotiated with sponsors and PBMs. The PBMs we interviewed 
also told us they observed that some manufacturers decreased the 
amount of rebates for the brand-name drugs they offered, which they 
believe occurred as a result of the Discount Program. In comparison, 
most of the plan sponsors did not observe manufacturers decreasing 
rebate amounts and most manufacturers reported no effects on their 
rebate negotiations as a result of the Discount Program. Most sponsors 
and PBMs told GAO that the Discount Program did not affect Part D plan 
formularies, plan benefit designs, or utilization management practices. 

GAO found that the prices for high-expenditure brand-name drugs used 
by beneficiaries in the coverage gap and by those who did not reach 
the gap in 2011 increased at a similar rate before and after the 
Discount Program was implemented in January 2011. Specifically, from 
January 2007 to December 2010, before the Discount Program began, the 
median price for the basket of 77 brand-name drugs (weighted by the 
utilization of each drug) used by beneficiaries in the coverage gap 
increased 36.2 percent. During the same period, the median price for 
the basket of 78 brand-name drugs used by beneficiaries who did not 
reach the coverage gap increased 35.2 percent. From December 2010 
through December 2011, the first year with the Discount Program, the 
median price for the two baskets increased equally by about 
13 percent, the greatest increase in median price for both baskets 
compared to earlier individual years. 

HHS reviewed a draft of this report and in its written comments noted 
that GAO’s findings on stakeholder perspectives and changes in brand-
name drug prices were consistent with its experience and CMS’s drug 
price analysis. HHS stated that CMS will continue to monitor the 
Discount Program and Part D drug prices. 

View [hyperlink, http://www.gao.gov/products/GAO-12-914]. For more 
information, contact John Dicken at (202) 512-7114 or DickenJ@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

CMS Oversees Coverage Gap Discounts Provided by Plan Sponsors and Paid 
for by Manufacturers: 

Plan Sponsors, PBMs, and Manufacturers Had Different Perspectives on 
Aspects of the Drug Pricing and Plan Design Effects of the Discount 
Program: 

Prices Increased at a Similar Rate for Brand-Name Drugs Used by 
Beneficiaries in the Coverage Gap and by Those Who Did Not Reach the 
Gap: 

Agency Comments: 

Appendix I: Methodology for Examining Brand-Name Drug Price Trends: 

Appendix II: Brand-Name Drugs Included in Price Trend Analyses: 

Appendix III: How the Discount Program Works at the Point-of-Sale for 
Brand-Name Drugs: 

Appendix IV: Comments from the Department of Health and Human Services: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Medicare Enrollment by Plan Type and Income Subsidy Status, 
2011: 

Table 2: Coinsurance Paid by Non-LIS beneficiaries While in the 
Coverage Gap for Brand-Name and Generic Drugs, 2011 to 2020: 

Table 3: The High-Expenditure Brand-Name Drugs Used by Non-LIS 
Beneficiaries in the Coverage Gap and by Those Who Did Not Reach the 
Coverage Gap in 2011: 

Figures: 

Figure 1: Comparison of a Non-LIS Beneficiary's Out-of-Pocket Spending 
for Prescription Drugs in the Coverage Gap under the Standard Benefit 
in 2011, without and with the Medicare Coverage Gap Discount Program 
in Place: 

Figure 2: Price Indexes for Brand-Name Drugs Used by Medicare Part D 
Beneficiaries in the Coverage Gap and by Those Who Did Not Reach the 
Gap in 2011: 

Figure 3: Annual Percent Change in Price for Brand-Name Drugs Used by 
Medicare Part D Beneficiaries in the Coverage Gap and by Those Who Did 
Not Reach the Gap in 2011: 

Figure 4: Hypothetical Example: A Non-LIS Beneficiary in a Standard 
Benefit Plan Purchasing a Brand-Name Drug While in the Coverage Gap in 
2011: 

Abbreviations: 

CMS: Centers for Medicare & Medicaid Services: 

Discount Program: Medicare Coverage Gap Discount Program: 

Discount Program Agreement: Coverage Gap Discount Program Agreement: 

DR: delayed release: 

ER: extended release: 

FDA: Food and Drug Administration: 

HCERA: Health Care and Education Reconciliation Act of 2010: 

HCT: hydrochlorothiazide: 

HFA: hydrofluoroalkanes: 

HHS: Department of Health and Human Services: 

LA: long acting: 

LIS: low-income subsidy: 

MA-PDP: Medicare Advantage prescription drug plan: 

MedPAC: Medicare Payment Advisory Commission: 

MMA: Medicare Prescription Drug, Improvement, and Modernization Act of 
2003: 

NDC: national drug code: 

NDC-9: nine-digit national drug code: 

PBM: pharmacy benefit manager: 

PDE: prescription drug event: 

PDP: stand-alone prescription drug plan: 

PPACA: Patient Protection and Affordable Care Act: 

TPA: third-party administrator: 

[End of section] 

September 28, 2012: 

The Honorable Max Baucus: 
Chairman: 
Committee on Finance: 
United States Senate: 

The Honorable Henry A. Waxman: 
Ranking Member: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Sander M. Levin: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

The Honorable John D. Dingell: 
House of Representatives: 

In 2011, approximately 29 million Medicare beneficiaries were enrolled 
in Medicare's outpatient prescription drug benefit, known as Part D. 
Prior to 2011, many Medicare beneficiaries with Part D prescription 
drug coverage paid 100 percent of their drug costs while in the 
coverage gap or "donut hole." The coverage gap occurs between the 
initial and catastrophic coverage periods, during which Medicare 
payments reduce beneficiaries' costs. The Medicare Coverage Gap 
Discount Program (Discount Program), established by the Patient 
Protection and Affordable Care Act (PPACA) in 2010, was implemented in 
2011 as part of an effort to assist beneficiaries who do not receive 
Part D's low-income subsidy (LIS) with their drug costs when they 
reach the coverage gap.[Footnote 1] 

Beginning in January 2011, PPACA required that drug manufacturers 
wishing to have their drugs covered under the Part D program 
participate in the Discount Program, which requires them to provide a 
50 percent discount on the price that Part D plan sponsors[Footnote 2] 
negotiate for brand-name drugs when beneficiaries reach the coverage 
gap.[Footnote 3] Under PPACA, Medicare will provide a subsidy over 
time to cover more of beneficiaries' spending when they reach the 
coverage gap so that by 2020 the coverage gap is eliminated. The 50 
percent discount that brand-name manufacturers must pay for brand-name 
drugs is permanent. 

You raised concerns that manufacturers participating in the Discount 
Program may raise prices for brand-name drugs used by beneficiaries 
who are in the coverage gap more rapidly than for other drugs to 
offset the 50 percent discount that manufacturers are required to give 
these drugs. You also asked us to describe the oversight that the 
Centers for Medicare & Medicaid Services (CMS), located within the 
Department of Health and Human Services (HHS), provides of the new 
Discount Program and the potential effects of the new program. In this 
report, we describe (1) CMS's oversight activities for the Discount 
Program; (2) the perspectives of Medicare Part D plan sponsors, drug 
manufacturers, and pharmacy benefit managers (PBM) on the effects of 
the Discount Program; and (3) how prices changed before and after 
implementation of the Discount Program for brand-name drugs used by 
beneficiaries who did and beneficiaries who did not reach the coverage 
gap in 2011. 

To describe CMS's oversight activities for the Discount Program, we 
reviewed relevant laws, such as PPACA, and regulations, as well as 
guidance that CMS provided to plan sponsors and drug manufacturers 
clarifying various policy and technical aspects of the Discount 
Program. We also reviewed CMS's Coverage Gap Discount Program 
Agreement (Discount Program Agreement), the contract between CMS and 
drug manufacturers outlining CMS's oversight responsibilities for the 
Discount Program and drug manufacturers' obligation to provide 
discounts for brand-name drugs to eligible beneficiaries in the 
coverage gap.[Footnote 4] We also interviewed CMS officials to obtain 
information on CMS's oversight activities, including steps the agency 
has taken to monitor manufacturers' and plan sponsors' adherence to 
their Discount Program responsibilities, as outlined in the Discount 
Program Agreement, and whether the agency has reviewed outcomes 
related to the program. 

We also interviewed a sample of Medicare Part D plan sponsors, PBMs, 
and drug manufacturers to describe their perspectives on the effects 
of the Discount Program. To select our sample of plan sponsors to 
interview, we used Medicare Part D enrollment data provided by CMS to 
identify the plan sponsors with the highest non-LIS beneficiary 
enrollment in Medicare Part D as of January 1, 2011.[Footnote 5] We 
interviewed the seven largest plan sponsors that represented about 68 
percent of total non-LIS enrollment in Medicare Part D as of January 
1, 2011. Additionally, we interviewed three PBMs that contracted with 
at least one of the plan sponsors we interviewed. To select our sample 
of drug manufacturers to interview, we used 2011 Medicare Part D 
prescription drug event (PDE) data provided by CMS to identify the top 
10 manufacturers whose brand-name drugs accounted for the highest 
total drug expenditures used by non-LIS Medicare Part D beneficiaries 
in the coverage gap in 2011.[Footnote 6] Of the top 10 manufacturers, 
we interviewed 8 manufacturers that represented about 54 percent of 
the total expenditures for brand-name drugs used by non-LIS 
beneficiaries who reached the coverage gap in 2011. We used structured 
interview protocols to gather consistent information about the 
perspectives of each entity on the effects of the Discount Program, 
such as any changes in drug prices, rebate negotiations, and 
prescription drug benefits.[Footnote 7] 

To describe how prices changed before and after implementation of the 
Discount Program for brand-name drugs used by beneficiaries who did 
and beneficiaries who did not reach the coverage gap in 2011, we 
analyzed the trend in Medicare Part D prices from January 2007 through 
December 2011 for two baskets of brand-name drugs used by non-LIS 
beneficiaries. The first basket of brand-name drugs included 77 high-
expenditure brand-name drugs used by non-LIS beneficiaries while in 
the coverage gap in 2011 and the second basket included 78 high-
expenditure brand-name drugs used by non-LIS beneficiaries who did not 
reach the coverage gap in 2011.[Footnote 8] We compared price trends 
for these two baskets because brand-name drugs used by non-LIS 
beneficiaries while in the coverage gap in 2011 may be more 
susceptible to price increases, since manufacturers must provide a 50 
percent discount for these drugs, compared with drugs used by non-LIS 
beneficiaries who did not reach the gap and thus were not subject to 
the discount.[Footnote 9] For each of the drugs in the two baskets, we 
analyzed the median price, weighted by the utilization of each drug. 
The drug prices we analyzed were based on prices negotiated by plan 
sponsors and were affected by price changes made by manufacturers. We 
also conducted additional analyses of subsets of drugs of these 
baskets. For example, because a significant number of drugs overlapped 
both baskets (50 drugs), we compared price trends for the brand-name 
drugs that did not overlap. (See appendix I for a detailed discussion 
of our methodology for examining brand-name drug price changes and 
appendix II for a listing of the brand-name drugs in each basket.) 

Our findings are limited to those sponsors, PBMs, and manufacturers we 
spoke with and are not representative of the effects observed across 
all of these types of entities. Additionally, any price changes we 
observed may not be directly related to the Discount Program since 
multiple factors can affect drug prices over time. We reviewed data we 
received from CMS for reasonableness and consistency, including 
screening for outliers. We also reviewed documentation and spoke with 
CMS officials about steps taken to ensure data reliability. Based on 
this review, we determined that the data used in this report were 
sufficiently reliable for our purposes. We conducted this performance 
audit from August 2011 through September 2012 in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings 
and conclusions based on our audit objectives. We believe that the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Background: 

Medicare Part D Enrollment and Spending: 

Approximately 49 million elderly and disabled individuals were 
enrolled in Medicare in 2011, of which about 29 million were enrolled 
in Part D. Medicare beneficiaries obtain Part D coverage by choosing 
from multiple, competing plans offered by plan sponsors--often private 
insurers--that contract with CMS to offer the prescription drug 
benefit. About 63 percent of the approximately 29 million Part D 
beneficiaries were enrolled in stand-alone prescription drug plans 
(PDP), which add drug coverage to original fee-for-service Medicare 
and certain Medicare plans, and approximately 37 percent were enrolled 
in Medicare Advantage prescription drug plans (MA-PDP), which provide 
Medicare benefits and prescription drug coverage through a single 
privately managed plan (see table 1 for the number of beneficiaries 
enrolled by plan type).[Footnote 10] Of the approximately 29 million 
beneficiaries enrolled in Medicare Part D, about 36 percent were LIS 
beneficiaries and approximately 64 percent were non-LIS beneficiaries 
(see table 1 for the number of beneficiaries enrolled in PDPs and MA-
PDPs who were LIS and non-LIS). 

Table 1: Medicare Enrollment by Plan Type and Income Subsidy Status, 
2011: 

Medicare enrollment: 

Total Medicare enrollment: 48.7 million. 

Total Medicare Part D enrollment: 29.3 million. 

Stand-alone prescription drug plans (PDP): 18. million. 

Medicare Advantage prescription drug plans (MA-PDP): 10.7 million. 

Total Medicare Part D enrollment: 29.3 million. 

Non-low-income subsidy (LIS): 18.8 million. 

LIS: 10.5 million. 

Source: Boards of Trustees of the Federal Hospital Insurance and 
Federal Supplementary Medical Insurance Trust Funds and Medicare 
Payment Advisory Commission (MedPAC). 

Note: Total Medicare enrollment for 2011 is from the Board of Trustees 
Report and Medicare Part D enrollment figures are from MedPAC's 
analysis of April 2011 enrollment data. See Boards of Trustees, 
Federal Hospital Insurance and Federal Supplementary Medical Insurance 
Trust Funds, 2012 Annual Report of the Boards of Trustees of the 
Federal Hospital Insurance and Federal Supplementary Medical Insurance 
Trust Funds (Washington, D.C.: Apr. 23, 2012) and Medicare Payment 
Advisory Commission, March 2012 Report to the Congress: Medicare 
Payment Policy (Washington, D.C.: Mar. 15, 2012). 

[End of table] 

In 2011, federal spending on Part D totaled approximately $67 billion, 
accounting for about 12 percent of total Medicare expenditures. 
[Footnote 11] Medicare Part D spending depends on several factors, 
including the number of beneficiaries, their health status and extent 
of drug utilization, and the cost of drugs covered by Part D. In its 
2012 report to Congress, the Medicare Payment Advisory Commission 
(MedPAC) reported that prices for individual Part D drugs (brand-name 
and generics) rose by an average of 18 percent cumulatively between 
January 2006 and December 2009.[Footnote 12] To help keep Part D 
spending down, CMS relies on competing plan sponsors to negotiate drug 
prices for the beneficiaries in their plans.[Footnote 13] Medicare 
Part D plan sponsors may contract with PBMs to negotiate price 
discounts with retail pharmacies and rebates with drug manufacturers 
for the drugs a plan covers, or plan sponsors may independently 
negotiate directly with pharmacies and manufacturers.[Footnote 14] The 
price discounts that plan sponsors negotiate with pharmacies are based 
on drug prices that manufacturers establish and generally result in a 
lower price that a beneficiary pays at the point-of-sale. In 
comparison, the rebates that plan sponsors negotiate with drug 
manufacturers are passed on to plan sponsors who may use them to lower 
beneficiary costs including premiums.[Footnote 15] 

Medicare Part D Benefit and Plan Design: 

The Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 (MMA), which established Medicare Part D, required that all Part 
D plan sponsors offer a minimum set of benefits to beneficiaries, 
defined as the standard Part D benefit.[Footnote 16] For non-LIS 
beneficiaries, this benefit features a deductible (a fixed dollar 
amount that beneficiaries must pay before coverage takes effect) and 
an initial coverage period during which the beneficiary pays a 
coinsurance (or percentage share of the drug's actual costs) for 
prescription drugs until the beneficiary reaches the initial coverage 
limit. After the initial coverage period, the beneficiary enters the 
coverage gap, which is followed by the catastrophic coverage period in 
which he or she pays a small amount of the total drug costs.[Footnote 
17] Beneficiaries must also pay a monthly premium to be enrolled in a 
Part D plan. LIS beneficiaries do not pay the same out-of-pocket costs 
as non-LIS beneficiaries since they receive subsidies to assist them 
with their out-of-pocket drug costs. 

In 2011, out-of-pocket costs for non-LIS beneficiaries in defined 
standard benefit plans in the initial coverage period included a $310 
deductible and 25 percent coinsurance (with the plan paying the 
remaining 75 percent) until the total combined drug costs paid by the 
beneficiary and the Part D Plan reached the initial coverage limit of 
$2,840.[Footnote 18] The beneficiary then entered the coverage gap 
until total drug costs reached the 2011 catastrophic coverage 
threshold of $6,447.50. Once this threshold was reached, the 
beneficiary paid the greater of either a $2.50 to $6.30 copayment or 5 
percent coinsurance per prescription during the catastrophic period. 
Prior to 2011, non-LIS beneficiaries in the defined standard benefit 
plan were responsible for 100 percent of their drug costs while in the 
coverage gap. 

MMA also allows plan sponsors to offer plans that are either 
actuarially equivalent to or exceed the defined standard benefit. 
These benefit plans can vary in design with regards to the monthly 
premiums, initial coverage limit, and cost-sharing arrangements such 
as copayments and coinsurance, but include the elements of the defined 
standard benefit. For example, plans with enhanced drug benefits may 
charge higher monthly premiums than defined standard benefit plans, 
but may offer a reduced or no deductible, charge a lower coinsurance 
amount than the 25 percent coinsurance during the initial coverage 
period, and provide some coverage for drugs when beneficiaries reach 
the coverage gap. Most Part D beneficiaries are enrolled in these 
actuarially equivalent or enhanced benefit plans.[Footnote 19] Each 
plan also has a formulary (a list of the prescription drugs that it 
covers) and plan sponsors select the coinsurance or copay amount that 
beneficiaries must pay for each listed drug.[Footnote 20] Plan 
sponsors may require beneficiaries to pay a higher coinsurance or co-
pay amount, for example, for certain high-cost drugs, such as 
specialty-tier eligible drugs that treat conditions such as cancer, 
multiple sclerosis, and rheumatoid arthritis.[Footnote 21] Plan 
sponsors also select whether any utilization management practices 
apply for each listed drug, such as limits on the amount of drug that 
can be provided.[Footnote 22] 

Medicare Part D Coverage Gap Discount Program: 

The Discount Program began in January 2011 after being established in 
2010 by PPACA to reduce beneficiaries' out-of-pocket drug costs when 
they reach the coverage gap. Non-LIS beneficiaries are eligible for 
the discount if they are enrolled in a PDP or MA-PDP, are not enrolled 
in a qualified retiree prescription drug plan, and have reached or 
exceeded the initial coverage limit during the year.[Footnote 23] 
Beneficiaries that are enrolled in enhanced plans providing some 
coverage for brand-name drugs when they reach the coverage gap may 
also receive the discount after supplemental benefits are applied. 
[Footnote 24] PPACA required that manufacturers wishing to have their 
brand-name drugs covered under the Medicare Part D program participate 
in the Discount Program. To participate in the Discount Program, 
manufacturers must sign an agreement with CMS to provide non-LIS 
beneficiaries a 50 percent discount on the plan-negotiated price for 
brand-name drugs at the point-of-sale when non-LIS beneficiaries reach 
the coverage gap.[Footnote 25] In addition, PPACA stipulated that both 
the portion of drug costs for brand-name drugs paid by the beneficiary 
and the portion paid by the manufacturer count toward reaching the 
beneficiary's annual catastrophic coverage threshold.[Footnote 26] As 
a result, beneficiaries' out-of-pocket costs will be significantly 
reduced. (See appendix III for information about how the Discount 
Program works for beneficiaries at the point-of-sale for brand-name 
drugs.) 

Separately, PPACA also included provisions that phase out the coverage 
gap gradually through 2020 by providing Medicare subsidies to help pay 
for the cost of brand and generic prescription drugs in the gap for 
non-LIS beneficiaries.[Footnote 27] Specifically, beginning in 2013, 
Medicare will pay 2.5 percent of the plan-negotiated price for brand-
name drugs.[Footnote 28] Medicare will increase its subsidy to 25 
percent for brand-name drugs by 2020, while manufacturers will 
continue to pay the 50 percent discount through 2020 and in subsequent 
years for a combined 75 percent payment towards brand-name drugs for 
beneficiaries. Additionally, beginning in January 2011, Medicare paid 
7 percent of the plan-negotiated price for generic drugs while the 
beneficiary paid 93 percent of the cost when they reached the coverage 
gap.[Footnote 29] Medicare will increase its subsidy to 75 percent for 
generic drugs by 2020.[Footnote 30] CMS encourages beneficiaries to 
use generic drugs to reduce their out-of-pocket spending for drugs, 
which also helps keep Medicare Part D spending down. In 2010, about 75 
percent of drugs dispensed in Medicare Part D were generic, according 
to CMS.[Footnote 31] The coverage gap will be eliminated by 2020 as 
the beneficiary's coinsurance for brand-name and generic drugs will be 
reduced to 25 percent--the same coinsurance amount as required during 
the initial coverage period. See table 2 for beneficiary coinsurance 
and Medicare subsidy amounts for brand-name and generic drugs through 
2020. 

Table 2: Coinsurance Paid by Non-LIS beneficiaries While in the 
Coverage Gap for Brand-Name and Generic Drugs, 2011 to 2020: 

Calendar year: 2011; 
Brand-name drugs: 
Beneficiary coinsurance: 50%; 
Medicare subsidy: 0%; 
Manufacturer discount: 50%; 
Generic drugs: 
Beneficiary coinsurance: 93%; 
Medicare subsidy: 7%. 

Calendar year: 2012; 
Brand-name drugs: 
Beneficiary coinsurance: 50%; 
Medicare subsidy: 0; 
Manufacturer discount: 50%; 
Generic drugs: 
Beneficiary coinsurance: 86%; 
Medicare subsidy: 14%. 

Calendar year: 2013; 
Brand-name drugs: 
Beneficiary coinsurance: 47.5%; 
Medicare subsidy: 2.5%; 
Manufacturer discount: 50%; 
Generic drugs: 
Beneficiary coinsurance: 79%; 
Medicare subsidy: 21%. 

Calendar year: 2014; 
Brand-name drugs: 
Beneficiary coinsurance: 47.5%; 
Medicare subsidy: 2.5%; 
Manufacturer discount: 50%; 
Generic drugs: 
Beneficiary coinsurance: 72%; 
Medicare subsidy: 28%. 

Calendar year: 2015; 
Brand-name drugs: 
Beneficiary coinsurance: 45%; 
Medicare subsidy: 5%; 
Manufacturer discount: 50%; 
Generic drugs: 
Beneficiary coinsurance: 65%; 
Medicare subsidy: 35%. 

Calendar year: 2016; 
Brand-name drugs: 
Beneficiary coinsurance: 45%; 
Medicare subsidy: 5%; 
Manufacturer discount: 50%; 
Generic drugs: 
Beneficiary coinsurance: 58%; 
Medicare subsidy: 42%. 

Calendar year: 2017; 
Brand-name drugs: 
Beneficiary coinsurance: 40%; 
Medicare subsidy: 10%; 
Manufacturer discount: 50%; 
Generic drugs: 
Beneficiary coinsurance: 51%; 
Medicare subsidy: 49%. 

Calendar year: 2018; 
Brand-name drugs: 
Beneficiary coinsurance: 35%; 
Medicare subsidy: 15%; 
Manufacturer discount: 50%; 
Generic drugs: 
Beneficiary coinsurance: 44%; 
Medicare subsidy: 56%. 

Calendar year: 2019; 
Brand-name drugs: 
Beneficiary coinsurance: 30%; 
Medicare subsidy: 20%; 
Manufacturer discount: 50%; 
Generic drugs: 
Beneficiary coinsurance: 37%; 
Medicare subsidy: 63%. 

Calendar year: 2020; 
Brand-name drugs: 
Beneficiary coinsurance: 25%; 
Medicare subsidy: 25%; 
Manufacturer discount: 50%; 
Generic drugs: 
Beneficiary coinsurance: 25%; 
Medicare subsidy: 75%. 

Source: CMS. 

[End of table] 

Figure 1 shows a comparison of a non-LIS beneficiary's out-of-pocket 
spending for prescription drugs when the beneficiary reaches the 
coverage gap under the standard benefit plan without and with 
implementation of the Discount Program in 2011. If the Discount 
Program was not in place, non-LIS beneficiaries in the standard 
benefit would have been responsible for $3,607.50 in drug costs during 
the coverage gap in 2011 ($6,447.50 annual catastrophic threshold - 
$2,840 initial coverage limit = $3,607.50). With the Discount Program, 
non-LIS beneficiaries would pay $1,803.75 in drug costs when using 
only brand-name drugs during the coverage gap. 

Figure 1: Comparison of a Non-LIS Beneficiary's Out-of-Pocket Spending 
for Prescription Drugs in the Coverage Gap under the Standard Benefit 
in 2011, without and with the Medicare Coverage Gap Discount Program 
in Place: 

[Refer to PDF for image: illustration] 

Beneficiary Spending without Coverage Gap; 
Discount Program[A]: 

Catastrophic coverage: 
5% paid by beneficiary; 
15% paid by plan; 
80% paid by Medicare. 
Catastrophic coverage limit = $6,447.50. 

Coverage gap: 
100% paid by beneficiary. 

Initial coverage period: 
25% paid; 
by beneficiary; 
75% paid by plan. 
Initial coverage limit = $2,840. 

Deductible: 
100% paid by beneficiary. 
Deductible = $310. 

Beneficiary Spending with Coverage Gap: 

Catastrophic coverage: 
5% paid by beneficiary; 
15% paid by plan; 
80% paid by Medicare. 
Catastrophic coverage limit = $6,447.50. 

Coverage gap: 
Brand-name drugs: 
50% paid by beneficiary; 
50% paid by manufacturer; 
Generic drugs: 
93% paid by beneficiary; 
7% paid by Medicare. 

Initial coverage period: 
25% paid; 
by beneficiary; 
75% paid by plan. 
Initial coverage limit = $2,840. 

Deductible: 
100% paid by beneficiary. 
Deductible = $310. 

Source: GAO analysis of CMS information. 

Note: Once the catastrophic threshold is reached, the beneficiary pays 
the greater of 5 percent coinsurance or copayments of $2.50 for 
generics or preferred multiple-source drugs and $6.30 for other drugs, 
including brand-name drugs. A multiple-source drug is one for which 
there is at least one other drug product rated as therapeutically and 
pharmaceutically equivalent. Therapeutically and pharmaceutically 
equivalent drugs have the same active ingredients and clinical 
effects. A preferred drug is a drug that is included on a plan's 
formulary for which beneficiary cost-sharing is lower (i.e., the drug 
has a preferred position), compared to a nonpreferred drug. 

[A] This side of the figure is an example of what beneficiary out-of-
pocket spending for prescription drugs would have been in 2011 if the 
Coverage Gap Discount Program had not been implemented. 

[End of figure] 

Discount Program Responsibilities for Plan Sponsors, Drug 
Manufacturers, and CMS: 

Plan sponsors, drug manufacturers, and CMS each have responsibilities 
for carrying out the Discount Program. Plan sponsors are responsible 
for making payments at the point-of-sale for the 50 percent discount 
for brand-name drugs on behalf of manufacturers, providing information 
to pharmacies about beneficiaries and the drugs subject to the 
discount, and reporting discount amounts to CMS. In order for the 
discount to be provided at the point-of-sale to beneficiaries, plan 
sponsors determine: (1) that the drug is an applicable drug; (2) that 
the beneficiary is eligible for the discount; (3) that the pharmacy 
claim for the drug is wholly or partially in the coverage gap; and (4) 
the amount of the discount. After the beneficiary receives the 
discount at the point-of-sale, plan sponsors are responsible for 
recording the amount of the discount that was paid for the drug, along 
with information such as the associated sales tax and dispensing 
fee.[Footnote 32] The plan sponsors include this information on the 
PDE record, a summary record for each prescription that a beneficiary 
fills. Plan sponsors must submit PDE records to CMS. 

Drug manufacturers are responsible for making payments to plan 
sponsors for the discounts sponsors provide on applicable drugs and 
maintaining up-to-date listings of drugs that are subject to the 
discount, as stated in the Discount Program Agreement. Manufacturers 
are required to reimburse plan sponsors for the discounts for 
applicable drugs that plan sponsors paid on their behalf at the point-
of-sale. Manufacturers are also responsible for electronically listing 
and maintaining an up-to-date electronic Food and Drug Administration 
(FDA) registration and listing of all national drug codes (NDC) so 
that CMS and plan sponsors can accurately identify applicable drugs in 
the Discount Program.[Footnote 33] 

CMS is responsible for making prospective payments to plan sponsors, 
invoicing manufacturers, and overseeing the Discount Program, as 
stated in the Discount Program Agreement. CMS makes monthly Part D 
prospective payments to plan sponsors for providing prescription drug 
benefits to Medicare beneficiaries, which includes payments for 
providing discounts to beneficiaries. The prospective payments are 
calculated with information such as the number of beneficiaries 
enrolled in a plan and their projected drug costs. CMS is also 
responsible for aggregating and validating the discount amounts that 
plan sponsors have paid, as reported on the PDE records. Upon 
aggregating the amount of the discounts that plan sponsors have paid, 
CMS sends this information to its third-party administrator (TPA), 
which is responsible for invoicing the manufacturers on a quarterly 
basis. CMS also monitors plan sponsors', manufacturers', and the TPA's 
compliance with their program responsibilities. 

CMS Oversees Coverage Gap Discounts Provided by Plan Sponsors and Paid 
for by Manufacturers: 

CMS oversees the provision of discounts by plan sponsors to eligible 
beneficiaries who reach the coverage gap, and ensures that the 
discounts are paid for by drug manufacturers. CMS oversight activities 
include performing checks of prescription drug data to verify that 
plan sponsors provide accurate discounts at the point-of-sale to 
eligible beneficiaries who reach the coverage gap. CMS also tracks the 
payment of discounts by drug manufacturers to plan sponsors and has 
implemented a dispute resolution process to resolve manufacturer 
disputes about discounts. In addition, CMS performs other activities, 
such as monitoring beneficiary complaints, and has reported on certain 
Discount Program outcomes. 

CMS Checks Prescription Drug Data to Verify That Plan Sponsors Provide 
Accurate Discounts to Eligible Beneficiaries: 

CMS performs 15 automated checks of PDE data specific to the Discount 
Program that verify whether plan sponsors have provided and accurately 
calculated discounts at the point-of-sale to eligible beneficiaries 
who reach the coverage gap.[Footnote 34] The PDE data checks include 
verifying that plan sponsors have provided discounts to beneficiaries 
who are eligible for a discount; for example, by checking 
beneficiaries' LIS status and their accumulated drug costs to confirm 
that they have reached the coverage gap within the benefit year. The 
PDE data checks also verify whether plan sponsors have accurately 
calculated discounts for beneficiaries. For example, CMS calculates an 
expected discount amount based on the brand-name drug price that is 
recorded on the PDE, and compares it with the discount amount that the 
plan sponsor records on the PDE. CMS provides plan sponsors with 
detailed information about any errors the agency identifies through 
the PDE data checks. Plan sponsors are responsible for correcting 
these errors and resubmitting the PDE records to CMS.[Footnote 35] CMS 
officials told us that an additional use of the PDE data checks is to 
prevent fraud in the Discount Program, since CMS uses PDE data to 
determine the final payment amounts owed to plan sponsors by comparing 
actual costs to the prospective payments that CMS makes to plan 
sponsors, which includes payment for the discounts plan sponsors 
provide to beneficiaries at the point-of-sale. CMS officials also told 
us they also review the validity of plan sponsors' PDE records for 
discounts as part of CMS's annual onsite audits of plan sponsors. 

CMS periodically provides guidance to plan sponsors about reporting 
Discount Program information on the PDE record and the agency's 15 PDE 
data checks. For example, in April 2010, CMS issued guidance to plan 
sponsors on the requirements and procedures for implementing the 
Discount Program, including how to calculate discounts for eligible 
beneficiaries enrolled in the defined standard benefit plan and how to 
record discount information using the PDE data fields that are 
specific to the Discount Program.[Footnote 36] Since the Discount 
Program was implemented in January 2011, CMS has issued further 
guidance to plan sponsors regarding the 15 PDE data checks. For 
example, in September 2011, CMS issued a memo to plan sponsors that 
explained how CMS plans to conduct PDE data checks that verify the 
status of brand-name drugs that received discounts using the FDA's 
updated NDC directory, which identifies brand-name drugs.[Footnote 37] 

CMS Tracks Discount Payments by Manufacturers and Has a Process to 
Resolve Payment Disputes: 

CMS tracks the payment of discounts by drug manufacturers to plan 
sponsors and can impose penalties for failure to pay. CMS officials 
reported that they track manufacturers' payments to plan sponsors for 
discounts by reviewing confirmation reports that plan sponsors submit 
to the agency when they receive payments from manufacturers. 
Manufacturers receive quarterly invoices from the TPA of discount 
payments owed to plan sponsors based on aggregated PDE data.[Footnote 
38] Manufacturers pay plan sponsors directly and plan sponsors submit 
a confirmation report to CMS upon the receipt of these payments. To 
ensure manufacturers make payments to plan sponsors for discounts, CMS 
may impose civil monetary penalties on drug manufacturers that fail to 
pay plan sponsors for the discounts.[Footnote 39] CMS officials told 
us a few manufacturers have been late in submitting payments to plan 
sponsors due to technical issues, and that one manufacturer did not 
submit payment because the company went bankrupt.[Footnote 40] CMS 
officials said they have not imposed any penalties on manufacturers as 
of July 2012. 

CMS has implemented a dispute resolution process that allows 
manufacturers to dispute discounts they have paid to plan sponsors if 
they find problems with the quarterly invoices. Manufacturers can 
submit a dispute within 60 days of receipt of the quarterly invoices 
to the TPA, which is responsible for determining if the dispute is 
valid and makes adjustments to manufacturers' invoices as necessary. 
Manufacturers have the right to appeal the TPA's determination through 
an independent review entity established by CMS.[Footnote 41] If the 
manufacturer disagrees with the independent review entity's 
determination, it may request the review of CMS, with CMS having the 
final decision on the dispute determination. In March 2012, CMS issued 
guidance providing manufacturers with detailed information about the 
basis for submitting disputes and CMS's process for evaluating dispute 
submissions.[Footnote 42] For example, CMS explained that 
manufacturers may submit a dispute for a discount amount included in 
an invoice because they believe it is too high, and such disputes 
would be evaluated by analyzing the drug's price relative to all other 
PDE records for the same drug. If it is determined that the price 
falls within an acceptable range, the dispute would be denied. 

CMS Performs Other Oversight Activities and Reports on Certain 
Discount Program Outcomes: 

CMS performs other oversight activities of the Discount Program that 
include maintaining codes, identifying drugs covered under the 
program, monitoring beneficiary complaints, and conducting audits of 
manufacturers: 

* The agency maintains a list of codes (called labeler codes) 
identifying drugs covered under the Discount Program, which it makes 
publicly available on the CMS website.[Footnote 43] CMS checks that 
manufacturers that participate in the Discount Program are providing 
discounts on brand-name drugs associated with this list of labeler 
codes. 

* CMS officials told us they monitor and resolve beneficiary 
complaints--expressions of dissatisfaction about the Medicare program, 
including concerns about providers and health plans--related to the 
Discount Program through their Part D Complaints Tracking Module. 
Beneficiaries submit the complaints, for example, by calling the 1-800-
MEDICARE toll-free number or submitting an online Medicare complaint 
form. CMS officials said that, as of June 30, 2012, they have received 
and resolved 147 beneficiary complaints about the Discount Program, 
including complaints from beneficiaries who reported they reached the 
coverage gap and did not receive discounts, who received incorrect 
discounts, or who had concerns about how the discount was calculated. 

* CMS may periodically audit drug manufacturers regarding information 
about the Discount Program that they are required to submit to the 
agency, including NDC expiration dates and labeler codes. 
Manufacturers rely on this information when they submit disputes of 
discounts from the quarterly invoices. CMS officials told us they have 
not conducted any of these audits as of July 2012. 

CMS also ensures that information that may identify beneficiaries is 
not disclosed in any capacity under the Discount Program, as stated in 
the Discount Program Agreement. In order to protect beneficiary 
information, CMS initially decided not to invoice manufacturers for 
low-volume claims--claims for a specific drug submitted by 10 or fewer 
beneficiaries at the same pharmacy--because they were concerned that 
certain information from these claims, such as the identity of the 
pharmacy, may be used to identify beneficiaries.[Footnote 44] After 
further evaluation of the policy, CMS issued guidance in January 2012 
stating that the agency would invoice manufacturers for low-volume 
claims; CMS officials told us they had determined that beneficiary 
information could not be identified from such invoices.[Footnote 45] 

In addition, CMS has stated that the agency conducts other monitoring 
activities of the Discount Program, which include reporting on certain 
outcomes of the program and monitoring Medicare Part D drug prices. 
For example, CMS reported that over 3.7 million beneficiaries who 
reached the coverage gap received discounts, with an average of $613 
in discounts per beneficiary in 2011.[Footnote 46] CMS officials told 
us they also monitor Medicare Part D brand-name drug prices annually. 
[Footnote 47] CMS will continue its process of monitoring drug prices, 
using data from 2011, which will take into account any effects on 
prices from the Discount Program and other factors.[Footnote 48] CMS 
officials further explained that because many factors, including time, 
can affect changes in drug prices, the agency may not be able to 
separate out such effects on prices from the time the Discount Program 
was introduced. 

Plan Sponsors, PBMs, and Manufacturers Had Different Perspectives on 
Aspects of the Drug Pricing and Plan Design Effects of the Discount 
Program: 

Plan sponsors, PBMs, and drug manufacturers we spoke with had 
different perspectives on aspects of the drug pricing and plan design 
effects of the Discount Program, which include drug prices, rebates, 
formularies, plan benefit design, and utilization management 
practices. Most plan sponsors and PBMs told us they believe the 
Discount Program may have been a factor in the rising prices of some 
brand-name drugs, while most manufacturers told us the Discount 
Program has not affected the prices of brand-name drugs they negotiate 
with sponsors and PBMs. The three PBMs we interviewed also told us 
they observed that some manufacturers decreased the amount of rebates 
for the brand-name drugs they offered, which they believe occurred as 
a result of the Discount Program. In comparison, most of the plan 
sponsors did not observe manufacturers decrease rebate amounts and 
most manufacturers reported no effects on their rebate negotiations as 
a result of the Discount Program. Most plan sponsors and PBMs also 
reported that the Discount Program did not affect their Part D plan 
formularies, plan benefit design, or utilization management practices. 

Most Plan Sponsors and PBMs Believe the Discount Program May Have Been 
a Factor in Rising Drug Prices, While Most Manufacturers Said It Has 
Not: 

Six of the seven plan sponsors and two of the three PBMs we 
interviewed told us they believe the Discount Program may have been a 
contributing factor in the rising prices of brand-name drugs by some 
manufacturers.[Footnote 49] Some sponsors and one PBM told us they 
believe that some manufacturers raised prices for their brand-name 
drugs to recoup the costs of the discounts that they anticipated 
paying. Some of these sponsors and one PBM based their observations on 
reviews of drug pricing data; for example, one plan sponsor told us it 
reviewed PDE data. Two of these plan sponsors and one PBM also told us 
they observed such price increases occurring as early as 2010--when 
the Discount Program was announced--and continuing through 2012. For 
example, one plan sponsor and one PBM told us that they attributed the 
Discount Program as a factor in rising brand-name drug prices they 
observed from 2010 to 2011 based on analyses of their own drug pricing 
data. 

Six of the eight manufacturers we interviewed, in comparison, believe 
that the prices of their brand-name drugs negotiated with plan 
sponsors and PBMs have not been affected by the Discount Program. One 
of the two remaining manufacturers said that it considered the 
Discount Program as a factor when negotiating drug prices, but other 
factors, such as whether a given drug has competitors in the market, 
had more influence over negotiations. The other remaining manufacturer 
told us it was still evaluating the impact of the Discount Program and 
therefore could not determine whether it will affect or has affected 
brand-name drug prices. 

PBMs, Plan Sponsors, and Manufacturers Had Different Observations on 
the Effects on Rebates as a Result of the Discount Program: 

The three PBMs we interviewed told us they observed that some drug 
manufacturers decreased the amount of rebates they offered for brand-
name drugs, which they believe occurred as a result of the Discount 
Program.[Footnote 50] One PBM observed that this was occurring among 
some manufacturers of specialty-tier-eligible drugs. Another PBM also 
told us it observed these effects beginning as early as 2010, prior to 
the implementation of the Discount Program in 2011. 

Four of the seven plan sponsors we interviewed told us they did not 
observe decreased rebates as a result of the Discount Program. Three 
of these four plan sponsors told us that, while they did not observe 
decreased rebates, they believe manufacturers may likely decrease the 
amount of rebates they offer in the future and, according to two plan 
sponsors, they expect the decreases to be a result of manufacturers 
trying to recoup the costs of the discounts manufacturers are paying 
for some drugs. The remaining one of these four plan sponsors told us 
it has not observed any changes to rebate amounts because it has 
worked with manufacturers to maintain the same rebate levels offered 
prior to the Discount Program. In comparison, two plan sponsors told 
us they did observe some manufacturers decrease the amount of rebates 
they offer, and one of these plan sponsors told us it believes this 
occurred as a result of the Discount Program. The remaining seventh 
plan sponsor we spoke with did not specifically address the Discount 
Program's effect on decreased rebate amounts. 

Six of the eight manufacturers we interviewed told us that the 
Discount Program did not change their rebate negotiations with plan 
sponsors and PBMs. However, two manufacturers told us that the 
Discount Program has changed some aspects of their rebate 
negotiations. For example, one of these two manufacturers told us it 
has established limits with plan sponsors regarding the rebate amounts 
it will pay to plan sponsors as a result of the discounts it has to 
pay for some drugs. The other manufacturer also told us that it has 
taken the Discount Program's effect into account when entering into 
rebate negotiations because paying for the discounts affects its 
profitability. 

Most Plan Sponsors and PBMs Reported That the Discount Program Did Not 
Affect Formularies, Plan Benefit Design, or Utilization Management 
Practices: 

Most plan sponsors and PBMs we interviewed reported that the Discount 
Program has not affected their Medicare Part D plan formularies, plan 
benefit designs, and drug utilization management practices.[Footnote 
51] All seven plan sponsors and two of the three PBMs we interviewed 
told us that Part D plan formularies have not changed as a result of 
the Discount Program. In addition, most of these plan sponsors and 
PBMs told us that the placement of brand-name drugs on plan 
formularies, including specialty-tier eligible drugs, was not affected 
by the Discount Program.[Footnote 52] In comparison, one PBM told us 
that formulary placement changes have occurred more frequently as a 
result of some manufacturers decreasing the amount of rebates they 
offer for brand-name drugs. In particular, this PBM has observed fewer 
brand-name drugs included on plan formularies as well as fewer brand-
name drugs placed on formularies in preferred positions, which result 
in lower beneficiary cost-sharing for those drugs.[Footnote 53] In 
addition to plan formularies, the seven plan sponsors we spoke with 
told us that the Discount Program has not affected the plan benefit 
design or drug utilization management practices of their Part D plans. 
For example, one of these plan sponsors told us that the Discount 
Program has not been a factor in any plan benefit design changes and 
that it bases its plan benefit design on factors such as the ability 
to compete for Medicare Part D beneficiaries. 

Prices Increased at a Similar Rate for Brand-Name Drugs Used by 
Beneficiaries in the Coverage Gap and by Those Who Did Not Reach the 
Gap: 

We found that prices for brand-name drugs used by beneficiaries in the 
coverage gap increased similarly to those used by beneficiaries who 
did not reach the gap, before and after the Discount Program was 
implemented in January 2011.[Footnote 54] From January 2007 to 
December 2010, prior to the implementation of the Discount Program, 
the median price (weighted by the utilization of each drug) for the 
basket of 77 brand-name drugs used by beneficiaries in the coverage 
gap increased 36.2 percent (see figure 2).[Footnote 55] When measured 
across the same period, the median price for the basket of 78 brand-
name drugs used by beneficiaries who did not reach the coverage gap 
also increased at a similar rate of 35.2 percent.[Footnote 56] During 
the first year with the Discount Program (from December 2010 through 
December 2011), the median prices for the two baskets increased 
equally at a rate of about 13 percent.[Footnote 57] 

Figure 2: Price Indexes for Brand-Name Drugs Used by Medicare Part D 
Beneficiaries in the Coverage Gap and by Those Who Did Not Reach the 
Gap in 2011: 

[Refer to PDF for image: multiple line graph] 

January 2007: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 100; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 100. 

February 2007: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 100.5; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 100.4. 

March 2007: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 100.9; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 100.7. 

April 2007: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 101.4; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 101.1. 

May 2007: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 101.5; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 101.1. 

June 2007: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 101.6; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 101.2. 

July 2007: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 102.5; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 102.1. 

August 2007: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 102.9; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 102.6. 

September 2007: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 103.4; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 103.1. 

October 2007: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 103.6; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 103.6. 

November 2007: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 103.8; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 103.8. 

December 2007: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 104.5; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 104.5. 

January 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 107.6; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 107.4. 

February 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 108.8; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 108.4. 

March 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 109.1; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 108.7. 

April 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 109.4; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 109.1. 

May 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 109.7; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 109.3. 

June 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 109.8; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 109.4. 

July 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 111.1; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 110.5. 

August 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 111.6; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 111.1. 

September 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 112.8; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 112.1. 

October 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 113.5; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 113.0. 

November 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 114.0; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 113.7. 

December 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 114.2; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 113.8. 

January 2008: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 117.1; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 116.4. 

February 2009: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 118.5; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 117.6. 

March 2009: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 119.6; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 118.5. 

April 2009: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 120.3; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 119.3. 

May 2009: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 120.4; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 119.3. 

June 2009: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 
120.686; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 119.927 

July 2009: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 121.8; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 121.0. 

August 2009: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 122.1; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 121.4. 

September 2009: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 122.8; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 121.8. 

October 2009: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 123.1; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 122.4. 

November 2009: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 123.4; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 122.6. 

December 2009: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 123.5; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 122.7. 

January 2010: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 127.4; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 126.0. 

February 2010: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 129.5; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 128.4. 

March 2010: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 130.2; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 128.9. 

April 2010: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 130.5; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 129.3. 

May 2010: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 130.6; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 129.3. 

June 2010: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 130.7 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 129.4. 

July 2010: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 132.6; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 131.7. 

August 2010: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 133.2; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 132.5. 

September 2010: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 134.5; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 133.9. 

October 2010: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 135.1; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 134.3. 

November 2010: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 135.3; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 134.4. 

December 2010: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 136.2; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 135.2. 

January 2011 (Discount program began): 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 142.2; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 141.2. 

February 2011: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 144.3; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 143.6. 

March 2011: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 144.9; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 144.0. 

April 2011: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 146.8; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 146.1. 

May 2011: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 147.3; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 146.4. 

June 2011: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 147.7; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 146.7. 

July 2011: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 150.4; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 149.1. 

August 2011: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 150.9; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 149.7. 

September 2011: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 151.5; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 150.5. 

October 2011: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 152.3; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 151.5. 

November 2011: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 153.6; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 152.7. 

December 2011: 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 154.1; 
Brand-name drugs used by beneficiaries who did not reach the coverage 
gap in 2011: 153.1. 

Source: GAO analysis of 2007 to 2011 Prescription Drug Event Data from 
CMS. 

Note: The price indexes are for two baskets of high-expenditure brand-
name drugs that were used by Medicare Part D beneficiaries who did not 
receive a low-income subsidy (LIS). Drugs can be high expenditure 
based on their price and utilization. The index values of 136.2 and 
154.1 indicate increases of 36.2 and 54.1 percent in the median prices 
for the basket of brand-name drugs used by Medicare Part D 
beneficiaries in the coverage gap in 2011, from January 2007 to 
December 2010 and from January 2007 to December 2011. The index values 
of 135.2 and 153.1 indicate increases of 35.2 and 53.1 percent in the 
median price for the basket of brand-name drugs used by beneficiaries 
who did not reach the coverage gap in 2011, from January 2007 to 
December 2010 and from January 2007 to December 2011. 

[End of figure] 

The median prices for the two baskets of brand-name drugs also 
increased similarly on an annual basis, from 2007 to 2011, with the 
greatest increase in price for both baskets occurring the first year 
with the Discount Program from December 2010 through December 2011 
(see figure 3).[Footnote 58] For example, from December 2009 through 
December 2010 the median price for the basket of drugs used by 
beneficiaries in the coverage gap and for the basket of drugs used by 
beneficiaries who did not reach the coverage gap each increased 10.2 
percent. The greatest annual percent increase for the two baskets of 
brand-name drugs occurred from December 2010 through December 2011, 
during which time the median price increased 13.1 percent for the 
basket of brand-name drugs used by beneficiaries in the coverage gap 
and 13.2 percent for the basket of brand-name drugs used by 
beneficiaries who did not reach the coverage gap. In addition, the 
average annual rate of increase for the basket of brand-name drugs 
used by beneficiaries in the coverage gap was 9.2 percent over the 
entire period (January 2007 to December 2011), compared with a 9.0 
percent increase for the other basket of drugs. 

Figure 3: Annual Percent Change in Price for Brand-Name Drugs Used by 
Medicare Part D Beneficiaries in the Coverage Gap and by Those Who Did 
Not Reach the Gap in 2011: 

[Refer to PDF for image: vertical bar graph] 

Percentage change: 

Year: 1/2007-1/2008; 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 4.5%; 
Brand-name drugs used by beneficiaries who did not reach coverage gap 
in 2011: 4.5%. 

Year: 1/2008-1/2009; 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 9.3%; 
Brand-name drugs used by beneficiaries who did not reach coverage gap 
in 2011: 8.9%. 

Year: 1/2009-1/2010; 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 8.1%; 
Brand-name drugs used by beneficiaries who did not reach coverage gap 
in 2011: 7.8%. 

Year: 1/2010-1/2011; 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 10.2%; 
Brand-name drugs used by beneficiaries who did not reach coverage gap 
in 2011: 10.2%. 

Year: 1/2011-12/2011; 
Brand-name drugs used by beneficiaries in coverage gap in 2011: 13.1%; 
Brand-name drugs used by beneficiaries who did not reach coverage gap 
in 2011: 13.2%. 

Source: GAO analysis of 2007 to 2011 Prescription Drug Event Data from 
CMS. 

Note: The percentage changes are for two baskets of high-expenditure 
brand-name drugs that were used by Medicare Part D beneficiaries who 
did not receive a low-income subsidy (LIS). Drugs can be high 
expenditure based on their price and utilization. The change in median 
price from January 2007 through December 2007 is expressed as an 
annual percentage change. 

[End of figure] 

We continued to find similar price increases for each basket of unique 
brand-name drugs during the first year with the Discount Program after 
removing the 50 drugs that overlapped both baskets. During the first 
year of the Discount Program, the median prices for the two baskets of 
unique drugs increased by over 12 percent: 12.3 percent for the 27 
unique drugs used by beneficiaries in the coverage gap and 12.9 
percent for the 28 unique drugs used by beneficiaries who did not 
reach the coverage gap. 

While many factors affect drug prices, such as the availability of 
competing drugs to treat the same condition and manufacturing and 
marketing costs, increasing brand-name drug prices can increase out-of-
pocket spending for some beneficiaries in the coverage gap as well as 
increase overall Part D spending. Thus, continued monitoring of brand-
name drug prices and manufacturer rebates will be important as the 
Discount Program matures. 

Agency Comments: 

HHS reviewed a draft of this report and in its written comments noted 
that our finding on the perspectives of stakeholders (Medicare Part D 
plan sponsors, drug manufacturers, and PBMs) on the effects of the 
Discount Program is consistent with HHS's expectations and experience. 
HHS commented that our finding on price changes before and after 
implementation of the Discount Program for brand-name drugs used by 
Medicare Part D beneficiaries who did and did not reach the coverage 
gap is also consistent with HHS's expectations and experience. HHS 
further noted that our finding on brand-name drug price changes is 
similar to the results of CMS's own analysis of drug price data, which 
used a different methodology. HHS commented that CMS will continue to 
monitor the Discount Program to ensure that discounts on brand-name 
drugs are applied accurately and in a timely manner for Medicare Part 
D beneficiaries. In addition, HHS noted that CMS will continue to 
monitor Part D drug prices as well as the impact of drug prices on the 
Medicare Part D program. HHS's comments are printed in appendix IV. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
Secretary of Health and Human Services and interested congressional 
committees. In addition, the report will be available at no charge on 
the GAO website at [hyperlink, http://www.gao.gov]. 

If you or your staff have questions about this report, please contact 
John E. Dicken at (202) 512-7114 or DickenJ@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. GAO staff members who made key 
contributions to this report are listed in appendix V. 

Signed by: 

John E. Dicken: 
Director, Health Care: 

[End of section] 

Appendix I: Methodology for Examining Brand-Name Drug Price Trends: 

To describe how prices changed before and after implementation of the 
Medicare Coverage Gap Discount Program (Discount Program) for brand-
name drugs, we compared the trend of Medicare Part D prices from 
January 2007 to December 2011 for a basket of brand-name drugs used by 
beneficiaries in the coverage gap with a basket of brand-name drugs 
used by beneficiaries who did not reach the gap in 2011. We compared 
price trends for these two baskets because brand-name drugs used by 
beneficiaries in the coverage gap in 2011--the year the Discount 
Program began--may be more susceptible to price increases, since 
manufacturers must provide a 50 percent discount for these drugs 
compared with drugs used by beneficiaries that do not reach the gap 
and thus are not subject to the discount.[Footnote 59] We limited our 
analyses of Medicare Part D prices to those brand-name drugs that had 
high expenditures--based on price and utilization--used by 
beneficiaries who did not receive a low-income subsidy (LIS) and who 
were enrolled in stand-alone prescription drug plans (PDP) and 
Medicare Advantage prescription drug plans (MA-PDP).[Footnote 60] 

We created two fixed baskets of high-expenditure brand-name drugs 
using prescription drug event (PDE) data obtained from the Centers for 
Medicare & Medicaid Services (CMS) to analyze the trend of Medicare 
Part D prices. We began by selecting: (1) the top 100 brand-name 
drugs, based on total expenditures, used by non-LIS beneficiaries in 
PDPs and MA-PDPs in the coverage gap in 2011 and (2) the top 100 brand-
name drugs, based on total expenditures, used by non-LIS beneficiaries 
in PDPs and MA-PDPs who did not reach the coverage gap in 2011. 
[Footnote 61] We identified the top 100 brand-name drugs for each 
basket by using the nine-digit national drug code (NDC-9).[Footnote 
62] We determined the brand-name status of each NDC-9 by using FDA's 
NDC directory, which CMS uses to identify whether a drug is a brand-
name drug and therefore eligible for a 50 percent discount under the 
Discount Program.[Footnote 63] We determined total expenditures for 
each NDC-9 by aggregating the amount paid at the point-of-sale for all 
PDE records corresponding to a given NDC-9.[Footnote 64] The amount 
paid at the point-of-sale included the ingredient cost (the drug's 
price negotiated by the beneficiary's Part D plan), sales tax, 
dispensing fee, and vaccination fee, if applicable.[Footnote 65] After 
identifying the top 100 high-expenditure brand-name drugs by NDC-9 in 
each basket, we excluded those NDC-9s that did not have at least 25 
PDE records in each month of our analysis, from January 2007 to 
December 2011, for data reliability purposes. After completing these 
data steps, we had two fixed baskets of drugs for which we could 
follow monthly prices throughout the period of our analysis. The fixed 
baskets included 77 brand-name drugs used by non-LIS beneficiaries in 
the coverage gap in 2011 and 78 brand-name drugs used by non-LIS 
beneficiaries who did not reach the coverage gap in 2011 (see appendix 
II for a list of the brand-name drugs included in each basket). 
[Footnote 66] 

To analyze Medicare Part D price trends for the two baskets of brand-
name drugs, we created utilization-weighted price indexes using PDE 
data to track the monthly change in the median ingredient cost per 
unit for all drugs in each basket from January 2007 to December 
2011.[Footnote 67] We used the median because it is not sensitive to 
the presence of extreme measurement errors. The ingredient cost 
reflects discounts negotiated with pharmacies but not certain price 
concessions such as drug manufacturer rebates.[Footnote 68] We tracked 
the ingredient cost for our analysis because it is subject to the 50 
percent discount by manufacturers for brand-name drugs under the 
Discount Program and is affected by price changes made by the 
manufacturer. We tracked the ingredient cost per unit to account for 
varying quantities dispensed for a drug at the point-of-sale. We 
performed several data edits involving the quantity dispensed and 
ingredient cost per unit variables to further improve data 
reliability.[Footnote 69] We then trimmed the data to remove outliers. 
[Footnote 70] To weight the baskets, we multiplied the monthly median 
ingredient cost per unit by each drug's relative utilization, 
calculated as the ratio of the drug's quantity dispensed to the total 
quantity dispensed for all drugs in the basket. To create the monthly 
price indexes for each basket, we summed the resulting weighted median 
ingredient cost per unit of all the drugs in the basket and divided 
the resulting value by the entire basket's weighted median ingredient 
cost per unit as of January 2007. Each price index began with a value 
100 as of January 2007. 

To further analyze Medicare Part D price trends, we calculated monthly 
changes in the median ingredient cost per unit of subsets of drugs of 
the two baskets of drugs. First, because a significant number of 
drugs--50--overlapped both baskets, we compared price trends for the 
brand-name drugs that did not overlap.[Footnote 71] Twenty-seven brand-
name drugs were included only in the basket of drugs used by non-LIS 
beneficiaries in the coverage gap in 2011 and 28 were included only in 
the basket of drugs used by non-LIS beneficiaries who did not reach 
the coverage gap in 2011. Second, within the basket of drugs used by 
beneficiaries in the coverage gap in 2011, we compared specialty-tier-
eligible drugs, which are high-cost drugs, to non-specialty-tier-
eligible drugs to examine whether specialty-tier-eligible drugs had 
different price changes than non-specialty-tier-eligible drugs. 
[Footnote 72] We considered specialty-tier-eligible drugs to be those 
drugs with a median cost that exceeded $600[Footnote 73] for a 30-day 
supply in 2011 (see appendix II for a list of the brand-name drugs 
considered specialty-tier-eligible).[Footnote 74] 

Our analyses of the trends in Medicare Part D prices are limited 
because we did not account for the multiple factors that can affect 
the prices of brand-name drugs over time. As a result, any changes we 
observed in prices may not be directly related to the implementation 
of the Discount Program. In addition, our analyses were limited to 
those brand-name drugs that had the highest total expenditures in 
2011. We reviewed all data from CMS for reasonableness and 
consistency, including screening for outliers. We also reviewed 
documentation and talked to CMS officials about steps they take to 
ensure data reliability. We determined that these data were 
sufficiently reliable for our purposes. 

[End of section] 

Appendix II: Brand-Name Drugs Included in Price Trend Analyses: 

We analyzed the trend in Medicare Part D prices from January 2007 
through December 2011 for two baskets of brand-name drugs used by 
beneficiaries who did not receive a low-income subsidy (LIS). Table 3 
lists the drugs we analyzed for both baskets: 

* the 27 high-expenditure brand-name drugs unique to the basket of 
drugs used by non-LIS beneficiaries in the coverage gap in 2011, 

* the 28 high-expenditure brand-name drugs unique to the basket of 
drugs used by non-LIS beneficiaries who did not reach the coverage gap 
in 2011, and: 

* the 50 high-expenditure brand-name drugs that overlapped both drug 
baskets. 

Table 3: The High-Expenditure Brand-Name Drugs Used by Non-LIS 
Beneficiaries in the Coverage Gap and by Those Who Did Not Reach the 
Coverage Gap in 2011: 

27 High-Expenditure Brand-Name Drugs Unique to the Basket of Drugs 
Used by non-LIS Beneficiaries in the Coverage Gap in 2011. 

Drug name, strength, route of administration, and dosage form: 
1. Atripla (600mg-200mg-300mg/oral/tablet)[A]. 

Drug name, strength, route of administration, and dosage form: 
2. Avonex (30mcg/0.5ml/multiple routes/kit)[A]. 

Drug name, strength, route of administration, and dosage form: 
3. Azilect (1mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
4. Enbrel (50mg/1ml/subcutaneous/solution)[A]. 

Drug name, strength, route of administration, and dosage form: 
5. Enbrel (50mg/1ml/subcutaneous/solution)[A]. 

Drug name, strength, route of administration, and dosage form: 
6. Femara (2.5mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
7. Gleevec (400mg/oral/tablet)[A]. 

Drug name, strength, route of administration, and dosage form: 
8. Humalog (100u/1ml/subcutaneous/suspension). 

Drug name, strength, route of administration, and dosage form: 
9. Humalog MIX 75 25 (25u/1ml-75u/1ml/subcutaneous/suspension). 

Drug name, strength, route of administration, and dosage form: 
10. Humira[A,B]. 

Drug name, strength, route of administration, and dosage form: 
11. Januvia (50mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
12. Levemir (100u/1ml/subcutaneous/solution). 

Drug name, strength, route of administration, and dosage form: 
13. Lyrica (50mg/oral/capsule). 

Drug name, strength, route of administration, and dosage form: 
14. Namenda (5mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
15. Novolog (100u/1ml/subcutaneous/solution). 

Drug name, strength, route of administration, and dosage form: 
16. Novolog FLEXPEN (100u/1ml/subcutaneous/solution). 

Drug name, strength, route of administration, and dosage form: 
17. Novolog MIX 70 30 (30u/1ml-70u/1ml/subcutaneous/suspension). 

Drug name, strength, route of administration, and dosage form: 
18. Novolog MIX 70 30 (30u/1ml-70u/1ml/subcutaneous/suspension). 

Drug name, strength, route of administration, and dosage form: 
19. Sensipar (30mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
20. Seroquel (25mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
21. Seroquel (50mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
22. Seroquel (100mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
23. Tarceva (150mg/oral/tablet)[A]. 

Drug name, strength, route of administration, and dosage form: 
24. Tracleer (125mg/oral/tablet)[A]. 

Drug name, strength, route of administration, and dosage form: 
25. Zyprexa (5mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
26. Zyprexa (10mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
27. Zyprexa (2.5mg/oral/tablet). 

28 High-Expenditure Brand-Name Drugs Unique to the Basket of Drugs 
Used by Non-LIS Beneficiaries Who Did Not Reach the Coverage Gap in 
2011. 

Drug name, strength, route of administration, and dosage form: 
1. Actonel (35mg/tablet/oral). 

Drug name, strength, route of administration, and dosage form: 
2. Alphagan P (0.1%/ophthalmic/solution). 

Drug name, strength, route of administration, and dosage form: 
3. Avapro (300mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
4. Avapro (150mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
5. Avelox (400mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
6. Azopt (0.1%/ophthalmic/suspension). 

Drug name, strength, route of administration, and dosage form: 
7. Benicar (20mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
8. Benicar HCT (25mg-40mg/oral/tablet)[C]. 

Drug name, strength, route of administration, and dosage form: 
9. Benicar HCT (12.5mg-40mg/oral/tablet)[C]. 

Drug name, strength, route of administration, and dosage form: 
10. Diovan HCT(25mg-160mg/oral/tablet)[C]. 

Drug name, strength, route of administration, and dosage form: 
11. Diovan HCT(12.5mg-80mg/oral/tablet)[C]. 

Drug name, strength, route of administration, and dosage form: 
12. Diovan HCT (12.5mg-320mg/oral/tablet)[C]. 

Drug name, strength, route of administration, and dosage form: 
13. Flovent HFA (0.11mg/inhalation/aerosol)[D]. 

Drug name, strength, route of administration, and dosage form: 
14. Humulin N (100u/1ml/subcutaneous/suspension). 

Drug name, strength, route of administration, and dosage form: 
15. Klor Con 10 (10mEq/oral/tablet(ER))[E]. 

Drug name, strength, route of administration, and dosage form: 
16. Lumigan (0.03%/ophthalmic/solution). 

Drug name, strength, route of administration, and dosage form: 
17. Nasonex (0.05mg/nasal/spray). 

Drug name, strength, route of administration, and dosage form: 
18. Nevanac (0.10%/ophthalmic/solution). 

Drug name, strength, route of administration, and dosage form: 
19. Premarin (0.625mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
20. Premarin (0.3mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
21. Premarin vaginal (0.625mg/1gm/vaginal/cream). 

Drug name, strength, route of administration, and dosage form: 
22. Ventolin HFA (0.09mg/inhalation/aerosol)[D]. 

Drug name, strength, route of administration, and dosage form: 
23. Vigamox (0.50%/ophthalmic/solution). 

Drug name, strength, route of administration, and dosage form: 
24. Vytorin (10mg-40mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
25. Vytorin (10mg-20mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
26. Vytorin (10mg-80mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
27. Xalatan (0.01%/ophthalmic/solution). 

Drug name, strength, route of administration, and dosage form: 
28. Zostavax (19400pfu/subcutaneous/powder). 

50 High-Expenditure Brand-Name Drugs that Overlapped the Basket of 
Drugs Used by Non-LIS Beneficiaries in the Coverage Gap in 2011 and 
the Basket of Drugs Used by Those Who Did Not Reach the Gap. 

Drug name, strength, route of administration, and dosage form: 
1. Actos (30mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
2. Actos (45mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
3. Actos (15mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
4. Advair Diskus 100/50 (0.1mg-0.05m/inhalation/disk). 

Drug name, strength, route of administration, and dosage form: 
5. Advair Diskus 250/50 (0.25mg-0.0m/inhalation/disk). 

Drug name, strength, route of administration, and dosage form: 
6. Advair Diskus 500/50 (0.5mg-0.05m/inhalation/disk). 

Drug name, strength, route of administration, and dosage form: 
7. Aggrenox (25mg-200mg/oral/capsule(ER))[E]. 

Drug name, strength, route of administration, and dosage form: 
8. Asacol (400mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
9. Avodart (0.5mg/oral/capsule). 

Drug name, strength, route of administration, and dosage form: 
10. Benicar (40mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
11. Boniva (150mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
12. Celebrex (200mg/oral/capsule). 

Drug name, strength, route of administration, and dosage form: 
13. Combivent (0.09mg-0.018mg/inhalation/aerosol). 

Drug name, strength, route of administration, and dosage form: 
14. Crestor (10mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
15. Crestor (20mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
16. Crestor (40mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
17. Crestor (5mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
18. Cymbalta (30mg/oral/capsule(DR))[F]. 

Drug name, strength, route of administration, and dosage form: 
19. Detrol LA[G] (4mg/oral/capsule (ER))e. 

Drug name, strength, route of administration, and dosage form: 
20. Diovan (160mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
21. Diovan (320mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
22. Diovan (80mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
23. Diovan HCT (25mg-320mg/oral/tablet)[C]. 

Drug name, strength, route of administration, and dosage form: 
24. Diovan HCT (12.5mg-160mg/oral/tablet)[C]. 

Drug name, strength, route of administration, and dosage form: 
25. Evista (60mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
26. Humulin 70 30 (70u/1ml-30u/1ml/subcutaneous/suspension). 

Drug name, strength, route of administration, and dosage form: 
27. Januvia (100mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
28. Lantus (100u/1ml/subcutaneous/solution). 

Drug name, strength, route of administration, and dosage form: 
29. Levemir (100u/1ml/subcutaneous/solution). 

Drug name, strength, route of administration, and dosage form: 
30. Lexapro (10mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
31. Lexapro (20mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
32. Lidoderm (5%/topical/patch (ER))[E]. 

Drug name, strength, route of administration, and dosage form: 
33. Lipitor (20mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
34. Lipitor (40mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
35. Lipitor (10mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
36. Lipitor (80mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
37. Lyrica (75mg/oral/capsule). 

Drug name, strength, route of administration, and dosage form: 
38. Namenda (10mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
39. Nexium (40mg/oral/capsule (DR))[F]. 

Drug name, strength, route of administration, and dosage form: 
40. Plavix (75mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
41. Proair HFA (0.09mg/inhalation/aerosol)[G]. 

Drug name, strength, route of administration, and dosage form: 
42. Restasis (0.05%/ophthalmic/emulsion). 

Drug name, strength, route of administration, and dosage form: 
43. Singulair (10mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
44. Spiriva (18mcg/inhalation/capsule). 

Drug name, strength, route of administration, and dosage form: 
45. Travatan Z (0.004%/ophthalmic/solution). 

Drug name, strength, route of administration, and dosage form: 
46. Tricor (145mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
47. Vesicare (5mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
48. Vesicare (10mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
49. Welchol (625mg/oral/tablet). 

Drug name, strength, route of administration, and dosage form: 
50. Zetia (10mg/oral/tablet). 

Source: GAO analysis of 2007 to 2011 Prescription Drug Event Data from 
CMS and July 2011 Red Book data. 

Notes: The drug strength indicates how much of the active ingredient 
is present in each dosage. The route of administration is the way of 
administering a drug to a site in a patient. The dosage form is the 
physical form in which a drug is produced and dispensed, such as a 
tablet, a capsule, or an injectable. Brand-name drugs were selected 
using the nine-digit national drug code (NDC-9). Levemir, Novolog MIX 
70 30, and Enbrel are listed twice with the same strength, route of 
administration, and dosage form because each had two different NDC-9s. 

[A] We characterized these drugs as specialty-tier-eligible drugs 
because they had a median cost that exceeded $600 for a 30-day supply 
in 2011. CMS establishes a minimum cost threshold that drugs must 
exceed before Medicare Part D plans can place them on a specialty 
tier, and in 2011 the threshold was $600. 

[B] Humira is a biologic that comes as a solution that is injected. 
Biologics replicate natural substances such as enzymes, antibodies, or 
hormones, and according to the Food and Drug Administration, most 
biologics are complex mixtures that are not easily identified or 
characterized. 

[C] HCT=hydrochlorothiazide. 

[D] HFA=hydrofluoroalkanes. 

[E] ER=extended release. 

[F] DR=delayed release. 

[G] LA=long acting. 

[End of table] 

[End of section] 

Appendix III: How the Discount Program Works at the Point-of-Sale for 
Brand-Name Drugs: 

Under the Medicare Coverage Gap Discount Program (Discount Program), 
the plan-negotiated drug price is the price used in the calculation of 
the 50 percent discount for brand-name drugs.[Footnote 75] The 50 
percent discount is based on the sum of the plan-negotiated drug price 
and the drug's sales tax. This sum is called the discounted amount, 
and the beneficiary and manufacturer each pay 50 percent of the 
discounted amount. The beneficiary is also responsible for the drug's 
dispensing fee and vaccination fee, if applicable.[Footnote 76] The 
entire cost of the drug, which includes the amount the beneficiary and 
manufacturer pays, is counted as out-of-pocket spending for the 
beneficiary, that is, towards the amount the beneficiary needs to move 
out of the coverage gap and into the catastrophic coverage period. 
Figure 4 provides a hypothetical example of how the 50 percent 
discount would be calculated at the point-of-sale for the purchase of 
a brand-name drug by a beneficiary who does not receive a low-income 
subsidy (non-LIS), is enrolled in a defined standard benefit plan in 
2011, and has reached the coverage gap. 

Figure 4: Hypothetical Example: A Non-LIS Beneficiary in a Standard 
Benefit Plan Purchasing a Brand-Name Drug While in the Coverage Gap in 
2011: 

[Refer to PDF for image: illustration] 
 
Example: Mrs. Jones reaches the coverage gap. She goes to her pharmacy 
to fill a prescription for a covered brand-name drug. The price of the 
drug is $95, the sales tax is $5, and the dispensing fee is $2. Once 
the the 50 percent discount is applied, the cost of the drug is $50. 
Because the $2 dispensing fee is added discounted amount, Mrs. Jones 
will pay $52 for the prescription. The entire $102 will be counted as 
out-of-pocket spending, part of the total needed for Mrs. Jones to 
reach the catastrophic coverage limit and move out of the coverage 
gap.   

Table: 

Description of costs: Plan-negotiated drug price; 
Amount: $95.00. 

Description of costs: Drug's sales tax; 
Amount: $5.00. 

Description of costs: Drug's discounted amount = drug price + sales 
tax; 
Amount: $100.00. 

Description of costs: Drug's dispensing fee; 
Amount: $2.00. 

Description of costs: Mrs. Jones' total cost = 50 percent of 
discounted amount + dispensing; fee; 
Amount: $52.00. 

Description of costs: Manufacturer's total cost = 50 percent of 
discounted amount; 
Amount: $50.00. 
  
Description of costs: Total amount applied to Mrs. Jones' out-of-
pocket spending; 
Amount: $102.00. 

Source: GAO. 

Note: The plan-negotiated drug price is the price that a plan sponsor, 
or pharmacy benefit manager on behalf of the plan sponsor, has 
negotiated for the beneficiary's plan. 

[End of figure] 

[End of section] 

Appendix IV: Comments from the Department of Health and Human Services: 

Department of Health And Human Services: 
Office of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

September 10 2012: 

John E. Dicken: 
Director, Health Care: 
U.S. Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Mr. Dicken: 

The Department appreciates the opportunity to review the U.S. 
Government Accountability Office's (GAO) report entitled, "Medicare 
Part D Coverage Gap: Discount Program Effects and Brand-name Drug 
Price Trends" (GAO 12-914). 

As the report notes, the Centers for Medicare and Medicaid Services 
(CMS) implemented a comprehensive oversight strategy to manage the 
Discount Program. CMS will continue to manage this program 
aggressively to ensure that brand-name discounts are applied 
accurately and timely. 

The GAO's findings from both the stakeholder interviews and the price 
stability analysis are consistent with HHS's expectations and 
experience. CMS's own analysis of pricing data using a different 
methodology resulted in similar findings. We will continue to monitor 
price stability for all Part D drugs and the impact of drug prices on 
the Part D program. 

Sincerely, 

Signed by: 

Jim R. Esquea: 
Assistant Secretary for Legislation: 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

John E. Dicken, (202) 512-7114 or DickenJ@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, individuals making key 
contributions to this report include Rashmi Agarwal, Assistant 
Director; Zhi Boon; Robert Copeland; Pam Dooley; Seta Hovagimian; and 
Laurie Pachter. 

[End of section] 

Related GAO Products: 

Drug Pricing: Research on Savings from Generic Drug Use. [hyperlink, 
http://www.gao.gov/products/GAO-12-371R]. Washington, D.C.: January 
31, 2012. 

Prescription Drugs: Trends in Usual and Customary Prices for Commonly 
Used Drugs. [hyperlink, http://www.gao.gov/products/GAO-11-306R]. 
Washington, D.C.: February 10, 2011. 

Medicare Part D: Spending, Beneficiary Out-of-Pocket Costs, and 
Efforts to Obtain Price Concessions for Certain High-Cost Drugs. 
[hyperlink, http://www.gao.gov/products/GAO-10-529T]. Washington, 
D.C.: March 17, 2010. 

Medicare Part D: Spending, Beneficiary Cost Sharing, and Cost-
Containment Efforts for High-Cost Drugs Eligible for a Specialty Tier. 
[hyperlink, http://www.gao.gov/products/GAO-10-242]. Washington, D.C.: 
January 29, 2010. 

Brand-name Prescription Drug Pricing: Lack of Therapeutically 
Equivalent Drugs and Limited Competition May Contribute to 
Extraordinary Price Increases. [hyperlink, 
http://www.gao.gov/products/GAO-10-201]. Washington, D.C.: December 
22, 2009. 

Medicare Part D Prescription Drug Coverage: Federal Oversight of 
Reported Price Concessions Data. [hyperlink, 
http://www.gao.gov/products/GAO-08-1074R]. Washington, D.C.: September 
30, 2008. 

Prescription Drugs: Trends in Usual and Customary Prices for Drugs 
Frequently Used by Medicare and Non-Medicare Health Insurance 
Enrollees. [hyperlink, http://www.gao.gov/products/GAO-07-1201R]. 
Washington, D.C.: September 7, 2007. 

Prescription Drugs: Price Trends for Frequently Used Brand and Generic 
Drugs from 2000 through 2004. [hyperlink, 
http://www.gao.gov/products/GAO-05-779]. Washington, D.C.: August 15, 
2005. 

[End of section] 

Footnotes: 

[1] For purposes of this report, references to PPACA include the 
amendments made by the Health Care and Education Reconciliation Act of 
2010 (HCERA). Pub. L. No. 111-148, § 3301,124 Stat. 119, 461 (2010), 
as amended by HCERA, Pub. L. No. 111-152, §§ 1101(b), (d), 124 Stat. 
1029, 1037, 1039 (amending various sections of Subtitle D of Title 
XVIII of the Social Security Act (codified at 42 U.S.C. §§ 1395w-101 
et seq.)). Beneficiaries receiving Part D's LIS have limited income 
and resources and are eligible for subsidies paid by Medicare to the 
drug plan in which they are enrolled. LIS beneficiaries are not 
eligible for the Discount Program. 

[2] Plan sponsors, often private insurers, contract with the Centers 
for Medicare & Medicaid Services to offer the prescription drug 
benefit. 

[3] A brand-name drug is a drug marketed under a proprietary, 
trademark-protected name. Pharmacy benefit managers may also negotiate 
brand-name drug prices on behalf of plan sponsors. 

[4] 42 U.S.C. § 1395w-114a(b); 77 Fed. Reg. 22072, 22173 (Apr. 12, 
2012) (to be codified at 42 C.F.R. § 2315). The Discount Program 
Agreement is signed between manufacturers and the Secretary of HHS. 

[5] To identify the plan sponsors, we excluded plans with restricted 
enrollment, including employer-sponsored, Demonstration, and Programs 
of All-Inclusive Care for the Elderly. 

[6] To identify the top 10 manufacturers, we excluded brand-name drug 
expenditures for beneficiaries enrolled in plans with restricted 
enrollment, including employer-sponsored, Demonstration, and Programs 
of All-Inclusive Care for the Elderly. 

[7] Rebates are payments that manufacturers make to plan sponsors so 
that the sponsors encourage the use of certain drugs by their 
beneficiaries. 

[8] For the first basket, we selected high-expenditure drugs that were 
used while non-LIS beneficiaries were in the coverage gap and did not 
include high-expenditure drugs used by these beneficiaries during the 
deductible and initial coverage periods, which are prior to the gap, 
or those during the catastrophic coverage period, which is after the 
gap. Drugs can be high expenditure based on their price and 
utilization. 

[9] While manufacturers did not know in advance specifically which 
individual beneficiaries would reach the coverage gap in 2011, there 
may have been an incentive to raise prices for brand-name drugs that 
were often used by beneficiaries who reached the coverage gap in prior 
years or by beneficiaries who were likely to have higher-than-average 
annual drug expenditures. 

[10] PDPs and MA-PDPs are offered by insurance companies and other 
private companies. 

[11] See Boards of Trustees, Federal Hospital Insurance and Federal 
Supplementary Medical Insurance Trust Funds, 2012 Annual Report of the 
Boards of Trustees of the Federal Hospital Insurance and Federal 
Supplementary Medical Insurance Trust Funds (Washington, D.C.: Apr. 
23, 2012). 

[12] MedPAC contracted with researchers at Acumen, LLC, to construct a 
series of volume-weighted price indexes for all drug and biologic 
prescriptions filled under Medicare Part D. The indexes do not reflect 
rebates from manufacturers, but do reflect discounts from pharmacies 
at the point-of-sale. MedPAC also reported that taking into account 
the substitution of generics for brand-name drugs, overall Part D 
prices rose 1 percent cumulatively between January 2006 and December 
2009. Medicare Payment Advisory Commission, March 2012 Report to the 
Congress: Medicare Payment Policy (Washington, D.C.: Mar. 15, 2012). A 
generic drug is chemically equivalent to its branded counterpart and 
is generally marketed by multiple manufacturers under a nonproprietary 
name. 

[13] Federal law prohibits the Secretary of HHS from interfering with 
price negotiations between plan sponsors and drug manufacturers and 
pharmacies. 42 U.S.C. § 1395w-111(i). 

[14] Plan sponsors may also contract with PBMs to help manage their 
prescription drug benefits, for example, by operating mail-order 
prescription services and administrative claims processing systems. A 
portion of the manufacturer's rebate may be retained by the PBM or the 
plan sponsor. 

[15] A premium is a periodic payment that a beneficiary must make to 
be enrolled in a Part D plan and receive prescription drug coverage. 
Beginning in 2011, PPACA required beneficiaries with higher incomes to 
pay an income-related premium, meaning that they must pay higher 
premiums than beneficiaries with lower incomes. 42 U.S.C. § 1395w-
113(a). 

[16] Pub. L. No. 108-173, § 101, 117 Stat. 2066, 2071 (adding a new 
Part D to title XVIII of the Social Security Act) (codified at 42 
U.S.C. §§ 1395w-101 et seq.). 

[17] The standard parameters are adjusted each year based on the 
percentage increase in average per capita total Part D drug 
expenditures for beneficiaries. 

[18] During the initial coverage period up until $2,840, the 
beneficiary paid a total of $942.50 in out-of-pocket costs ($310 for 
the deductible plus $632.50, which represents 25 percent coinsurance) 
while the plan paid $1897.50 (or 75 percent coinsurance). 

[19] In 2011, over 90 percent of beneficiaries in PDPs and MA-PDPs 
were enrolled in actuarially equivalent or enhanced plans. Most of 
these beneficiaries, however, do not have coverage for brand-name 
drugs in the coverage gap. See Medicare Payment Advisory Commission, 
March 2012 Report to the Congress: Medicare Payment Policy. 

[20] Sponsors must adhere to a minimum set of formulary requirements 
established in statute and regulation. Sponsors generally must include 
at least two drugs within each therapeutic category and class of 
covered Part D drugs. Exceptions are allowed, for example when there 
is only one drug in a particular category or class. In addition, CMS 
requires that formularies include "all or substantially all" drugs 
within six designated categories of clinical concern. See 42 U.S.C. § 
1395w-104(b)(3)(C)(i); 42 C.F.R. § 423.120(b)(2)(2011); CMS, Medicare 
Prescription Drug Benefit Manual, Chapter 6, § 30.2.5 (2010). 

[21] CMS allows plans to establish a specialty tier for high-cost 
drugs when their monthly cost exceeds a certain threshold, and in 2011 
CMS established a threshold of $600. Standard benefit plans may not 
charge a coinsurance amount greater than 25 percent for such drugs. 42 
C.F.R. § 423.578(a)(7)(2011); CMS, Medicare Prescription Drug Benefit 
Manual, Chapter 6, § 30.2.4 (2010). 

[22] These utilization management practices can include (1) step 
therapy, which requires that a beneficiary try lower-cost drugs before 
a sponsor will cover a more costly drug; (2) prior authorization, 
which requires a beneficiary to obtain the sponsor's approval before a 
drug is covered for that individual; and (3) quantity limits, which 
restrict the dosage or number of units of a drug provided within a 
certain period of time. Utilization management practices are subject 
to CMS approval. 

[23] To be eligible for the Discount Program, beneficiaries must not 
have not incurred costs for covered Part D drugs in the year equal to 
the annual out-of-pocket threshold. Beneficiaries with such incurred 
costs would be eligible for catastrophic coverage. 42 U.S.C. § 1395w-
114a(g)(1). 

[24] For beneficiaries enrolled in enhanced benefit plans that have 
brand-name drug coverage while in the coverage gap, the 50 percent 
discount is applied to the amount the beneficiary owes, according to 
their supplemental coverage. 42 U.S.C. § 1395w-114a(c)(2). For 
example, a beneficiary with a $30 copayment for brand-name drugs while 
in the coverage gap pays $15 and the manufacturer pays $15, after 
applying the 50 percent discount to the copayment. 

[25] 42 U.S.C. § 1395w-114a(a). In 2011, over 99 percent of brand-name 
drug manufacturers participated in the Discount Program, according to 
CMS officials. The discount is only applicable for brand-name drugs 
and those covered under Part D. 42 U.S.C. § 1395w-114a(g)(2). 

[26] 42 U.S.C. § 1395w-102(b)(4)(E). 

[27] PPACA, § 3301 (amending Part D of title XVIII) (codified at 42 
U.S.C. §§ 1395w-101 et seq.). 

[28] 42 U.S.C. § 1395w-102(b)(2)(D). 

[29] 42 U.S.C. § 1395w-102(b)(2)(C). 

[30] For brand-name drugs, all applicable discounts paid by 
manufacturers count toward reaching the beneficiary's annual 
catastrophic coverage threshold limit. See 42 U.S.C. § 1395w-
102(b)(4)(E). Since no such payments are made on behalf of 
beneficiaries in relation to generic drugs, only the amount the 
beneficiary pays for a generic drug counts toward reaching the 
threshold limit. 

[31] The substitution of generic drugs for brand-name drugs has 
contributed to the slower-than-expected growth in Medicare Part D 
spending between 2006 and 2011. See Kaiser Family Foundation, Medicare 
Part D Spending Trends: Understanding Key Drivers and the Role of 
Competition (Washington, D.C.: May 2012). 

[32] A dispensing fee is the amount paid to the pharmacy for 
dispensing a medication. 

[33] An NDC is an identifying prescription drug product number that is 
registered and listed with the FDA. See [hyperlink, 
http://www.fda.gov/Drugs/InformationOnDrugs/ucm142438.htm] for the 
FDA's listing of NDCs (accessed July 3, 2012). 

[34] CMS officials told us that the 15 PDE checks are included among 
the 150 PDE checks that CMS conducts for the Medicare Part D program. 

[35] According to CMS, plan sponsors are able to resolve most errors 
and may contact CMS for assistance as needed. 

[36] CMS, Prescription Drug Event (PDE) Record Changes Required to 
Close the Coverage Gap (Baltimore, Md.: Apr. 30, 2010). 

[37] CMS, Update on Part D National Drug Code Edits (Baltimore, Md.: 
Sept.12, 2011). 

[38] Three of the eight manufacturers we interviewed told us that they 
experienced problems with handling the quarterly invoices because the 
data files were provided in an outdated format, which required 
additional resources to program and interpret the invoice data. The 
TPA has other responsibilities related to the invoicing of 
manufacturers, including notifying manufacturers of invoice errors and 
making adjustments as needed to quarterly invoices. CMS officials told 
us they frequently monitor the TPA's performance via phone, e-mail, 
and meetings. CMS also plans to conduct its first audit and onsite 
visit of the TPA in 2012. 

[39] CMS requires manufacturers to pay all applicable discounts to 
plan sponsors within 38 days of receipt of the quarterly invoices. 

[40] CMS officials told us the agency has not determined what entity 
would be financially liable for making quarterly invoice payments if 
the company that went bankrupt does not pay these invoices. 

[41] In October 2011, CMS issued updated guidance on the dispute 
resolution process that expanded the time frames for manufacturers to 
appeal the TPA's determinations to the independent review entity from 
60 days to 90 days. See CMS, Medicare Coverage Gap Discount Program -
Updated Guidance (Baltimore, Md.: Oct. 28, 2011). 

[42] CMS, Medicare Coverage Gap Discount Program - Dispute Resolution 
(Baltimore, Md.: Mar. 5, 2012). Prior to CMS's issuance of the March 
2012 guidance, three of the eight manufacturers we interviewed told us 
that they wanted more guidance from CMS regarding the dispute 
resolution process, including more information on how to submit 
disputes of discount payments to the TPA. 

[43] Labeler codes are the first five digits of the NDC and identify 
the company that manufacturers a drug. Manufacturers submit this 
information to CMS to indicate what drugs are covered under the 
Discount Program. 

[44] Five of the eight manufacturers we interviewed reported that 
their financial reporting was impacted by not being invoiced for low-
volume claims. Three of the seven plan sponsors we interviewed also 
expressed concerns about not receiving payment from manufacturers for 
low-volume claims. 

[45] See CMS, Medicare Coverage Gap Discount Program - Update on Low-
Volume Claims (Baltimore, Md.: Jan. 27, 2012). CMS officials told us 
that manufacturers have been invoiced for all outstanding low-volume 
claims as of March 2012. 

[46] For example, CMS has analyzed changes in drug prices that are 
reported by plan sponsors on the Medicare Prescription Drug Plan 
Finder, an online tool that allows beneficiaries to compare plan and 
drug cost information for Medicare Part D plans. 

[47] CMS officials stated that they plan to conduct this analysis 
after CMS reconciles the differences between its prospective payments 
and actual expenditures for 2011. 

[48] The remaining plan sponsor we interviewed told us it did not 
observe changes to brand-name drug prices that it believes occurred as 
a result of the Discount Program. The remaining PBM told us while it 
has observed rising brand-name drug prices, the PBM cannot attribute 
the Discount Program as a factor. 

[49] The PBMs were speaking about the rebates they typically negotiate 
on behalf of the plan sponsors they represent. Manufacturers provide 
rebate payments to plan sponsors to encourage the use of certain 
drugs, and rebates result in overall lower Medicare spending for 
prescription drugs. 

[50] The PBMs were speaking about the formularies of the plan sponsors 
for which they conduct rebate negotiations. 

[51] The PBMs were speaking about the formularies of the plan sponsors 
for which they conduct rebate negotiations. 

[52] Two of these plan sponsors said they removed some brand-name 
drugs from formularies because the manufacturers who produced the 
drugs did not participate in the Discount Program. 

[53] In order to encourage the use of certain drugs among 
beneficiaries, manufacturers may pay a formulary rebate to a plan for 
placing a certain drug in a preferred position on the plan's 
formulary. In exchange for the rebate, the plan may charge a lower 
copayment to the beneficiary for the drug in the preferred position, 
compared to nonpreferred brand-name drugs, resulting in a lower cost 
for the beneficiary. 

[54] We examined whether high-expenditure brand-name drugs used by 
beneficiaries in the coverage gap may be more susceptible to price 
increases by drug manufacturers than those used by beneficiaries who 
did not reach the gap. 

[55] The point-of-sale price we analyzed is affected by price changes 
made by the manufacturer and reflects discounts that Part D plans have 
negotiated with pharmacies but does not include certain price 
concessions such as drug manufacturer rebates. While manufacturer 
rebates lower overall spending for drugs, manufacturer rebates are 
generally not passed onto the beneficiary at the point-of-sale. 

[56] The baskets of brand-name drugs represent those used by 
beneficiaries in the coverage gap in 2011 and those used by 
beneficiaries who did not reach the coverage gap in 2011. 

[57] The basket of drugs used by beneficiaries in the coverage gap 
included eight specialty-tier-eligible drugs, which are high-cost 
drugs, while the basket of drugs used by beneficiaries who did not 
reach the coverage gap did not include specialty-tier-eligible drugs. 
During the first year with the Discount Program (from December 2010 
through December 2011), the median price for the specialty-tier-
eligible drugs increased at a slower rate (8.8 percent) than the non-
specialty-tier-eligible drugs (13.4 percent) in the basket of drugs 
used by beneficiaries in the coverage gap. 

[58] The change in median price for 2007 is calculated from January 
2007 through December 2007. In later years, the annual change in 
median price is calculated from December through December. 

[59] While manufacturers did not know in advance specifically which 
individual beneficiaries would reach the coverage gap in 2011, there 
may have been an incentive to raise prices for brand-name drugs that 
were often used by beneficiaries who reached the coverage gap in prior 
years or by beneficiaries who were likely to have higher-than-average 
annual drug expenditures. 

[60] We excluded LIS beneficiaries because they are not eligible for 
the Discount Program. To focus on plans available to eligible 
beneficiaries, we excluded plans with restricted enrollment, including 
employer-sponsored, Demonstration, and Programs of All-Inclusive Care 
for the Elderly. We used CMS's monthly enrollment plan files, which 
are publicly available, to identify plans with restricted enrollment. 

[61] The 2011 PDE data included PDE records submitted to CMS through 
February 16, 2012, and did not include all PDE records for 2011 
because CMS may accept PDE records for up to 24 months following the 
end of the calendar year. CMS officials told us that in the past they 
have observed that about 10 to 15 percent of the PDE records were 
submitted after the calendar year. CMS officials further noted that 
these additional PDE records are often for adjustments for previously 
submitted claims rather than for new claims. We included PDE records 
for claims in the coverage gap period that straddled other periods, 
such as the catastrophic coverage period, because the 50 percent 
discount applies to the portion of the drug price that falls in the 
coverage gap. 

[62] NDCs are the universal product identifiers for drugs for human 
use. The Food and Drug Administration (FDA) assigns the first segment 
of the NDC, which identifies the firm that manufactures, repackages, 
or distributes a drug; the second segment identifies a specific 
strength, dosage form, and formulation for a particular drug; and the 
third segment identifies package size. Three-segment NDCs are denoted 
by 11 digits while two-segment NDCs are denoted by 9 digits, and do 
not account for package size. Because our analysis focused on NDCs 
with the same drug name and strength, we based our analysis on NDC-9s 
instead of NDC-11s. 

[63] To identify characteristics of brand-name drugs in each basket 
(e.g., drug name, strength), we used the July 2011 Red Book, published 
by Thomson Reuters. 

[64] Per CMS guidance for the Discount Program, we excluded PDE 
records for drugs not covered under Medicare Part D or that were 
compound drugs (drugs that are prepared by a pharmacist who mixes or 
adjusts drug ingredients to customize a medication). We also excluded 
PDE records in which the price the beneficiary paid for a drug may 
have been different than the drug price the beneficiary's plan 
negotiated (e.g., because the beneficiary filled the prescription at a 
pharmacy not in the plan's network) or the drug was not included in 
the beneficiary's plan formulary. 

[65] When plan sponsors or pharmacy benefit managers on behalf of plan 
sponsors negotiate drug prices with pharmacies, they typically 
negotiate discounts off a price that is established by manufacturers. 
A vaccination fee is the amount paid to a pharmacy or physician to 
cover the cost of administering a vaccination. 

[66] For the first basket, we selected high-expenditure drugs that 
were used while non-LIS beneficiaries were in the coverage gap and did 
not include high-expenditure drugs used by these beneficiaries during 
the deductible and initial coverage periods, which are prior to the 
gap, or those used during the catastrophic coverage period, which is 
after the gap. 

[67] Specifically, we used the Fisher price index, a commonly used 
price index formula, to measure the change in price per unit for each 
basket. The Fisher price index minimizes the problem of understating 
or overstating price changes by using the utilization from the first 
and last period of our analysis as weights. We used drug utilization 
from the first and last month of our analysis as weights. We 
calculated the ingredient cost per unit by dividing the drug's 
ingredient cost by the quantity dispensed. The quantity dispensed is 
the total number of units, grams, or milliliters, and corresponds to 
the relevant unit of measurement for a drug. 

[68] In 2011, CMS began collecting rebate information at the NDC level 
for the prior year (2010). CMS accounts for price concessions, such as 
rebates, at an aggregate level as part of its process to reconcile 
prospective payments with actual drug expenditures for each Part D 
plan sponsor. 

[69] For example, we made adjustments to the quantity dispensed 
variable when reported values were less than 1 or greater than 1,000 
(i.e., indicating the quantity may have been reported in incorrect 
units). 

[70] After performing these data edits, and trimming the data, which 
resulted in the exclusion of about 4 percent of PDEs from our 
analysis, the average coefficient of variation (i.e., the standard 
deviation divided by the mean) for the ingredient cost per unit 
variable improved, decreasing from 23 to 3 percent. 

[71] While 50 brand-name drugs overlapped the two baskets, each of 
these drugs had a different weight depending on their relative 
utilization in each basket. 

[72] The basket of brand-name drugs used by beneficiaries who did not 
reach the coverage gap in 2011 did not include specialty-tier-eligible 
drugs. 

[73] CMS establishes a minimum cost threshold that drugs must exceed 
before Medicare Part D plans can place them on a specialty tier, and 
in 2011 the threshold was $600. 

[74] We calculated the cost based on the sum of the drug's ingredient 
cost, sales tax, dispensing fee, and vaccination fee, if applicable. 

[75] 42 U.S.C. § 1395w-114a(g)(6); 77 Fed. Reg. 22072, 22080, 22172 
(Apr. 12, 2012) (to be codified at 42 C.F.R. § 423.2305). 

[76] Both the dispensing and vaccination fees apply to the 
beneficiary's out-of-pocket spending. Beginning in 2013, CMS will 
require that beneficiaries be responsible for only a portion of the 
drug dispensing fee for all applicable drugs while they are in the 
coverage gap. This portion is commensurate with the beneficiary 
coinsurance (e.g., 47.5 percent coinsurance for brand-name drugs in 
2013). The plan sponsor will be responsible for paying the remaining 
portion of the dispensing fee. CMS, Announcement of Calendar Year (CY) 
2013 Medicare Advantage Capitation Rates and Medicare Advantage and 
Part D Payment Policies and Final Call Letter, at 32, (Apr. 2, 2012). 

[End of section] 

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