Study says Medicare prescription flaws costs $5 billion

Researchers have known for years that low-income Medicare recipients don't always receive the prescription drug coverage that best matches their needs; but thanks to a new study, there's now a price tag for this inefficiency:

About $5 billion.

That's how much the federal government could save in one year if it changed the way Medicare Part D plans are assigned to low-income beneficiaries receiving subsidies, according to the study from the University of Pittsburgh Graduate School of Public Health.

The government spends about $45 billion a year to help low-income enrollees (people making less than 150 percent of the federal poverty line) pay for the drugs they need. Right now, those subsidy recipients – about 40 percent of Part D recipients, or more than 10 million beneficiaries in all – are randomly assigned to stand-alone Part D plans, if they don't actively choose a plan of their own.

But those "benchmark" plans differ by insurance provider and by geographic region, and they don't always cover the same drugs at the same price because the federal government doesn't require a standard drug formulary across all of its Medicare plans.

If seniors were assigned to the least-expensive plans that best suited their prescription needs – rather than randomly assigned – the government would save $5 billion in year one and additional savings annually, said Yuting Zhang, associate professor of health economics at the school's Department of Health Policy and Management.

Many of those assigned to "bad" plans have been in the wrong plan since the launch of Part D in 2006, when seniors began shifting away from Medicaid and other state-based prescription drug programs and into Medicare. They were randomly assigned, Zhang said, in the rush to make sure that everybody eligible for coverage was receiving it. (Before 2006, prescription drugs benefits were not part of the standard Medicare plans.)

Much of the $5 billion in savings is tied up in "correcting the mismatch from the last few years," Zhang said.

Every year, though, people who turn 65 or are newly eligible for low-income subsidies have the potential to be randomly assigned to Part D plans. By assigning those people to the plans that fit best, there would be new savings each year.

The assignments could be made by a relatively simple computer program that would analyze a beneficiary's past prescription use and match him or her with the plan that fits best.

Several previous studies, including one published by Medicare's own research journals, have suggested that "beneficiary assignment to a plan with poor formulary coverage" is wasteful not only for the federal government but also for the enrollees themselves, in the way of unnecessary – though minimal – out-of-pocket costs.

Still, the primary beneficiary of a new assignment policy would be the federal government, since the subsidies pay for 95 percent of a drug plan's total costs, Zhang said.


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