Introduction

The Medicare Modernization Act signed into law in 2003 has been the largest
addition to Medicare, since its creation in 1965. In addition to the basic inpatient and
outpatient services provided by the original Medicare benefit (Parts A and B,
respectively), the Medicare Modernization Act provided prescription drug coverage to
Medicare beneficiaries for the first time. The prescription drug benefit provided by
Medicare Part D (MPD) has resulted in a greater percentage of Medicare beneficiaries
with prescription drug coverage, an increased utilization of prescription medications, and
reduced out-of-pocket costs among Part D beneficiaries since its inception on January 1,
2006.1'2,3 Despite these reported benefits, many Medicare beneficiaries continue to find
the MPD benefit to be confusing and the process of comparing prescription drug plans
overly complex.4

Medicare beneficiaries can receive prescription drug coverage in one of two
ways: a) enrolling in a stand-alone prescription drug plan (PDP) or b) signing up for a
Medicare Advantage plan (MA-PD, a.k.a. Medicare Part C). Medicare Advantage plans
combine Medicare Parts A, B, and in most cases Part D, while also providing some
additional benefits (e.g., vision or dental care) into a single comprehensive healthcare
plan provided by a private insurance company (e.g. Aetna® or Kaiser Permanente ). As
of November 2007, 27.8 million Medicare beneficiaries were enrolled in either a PDP or
a MA-PD, with the majority (63%) enrolled in the former.5 Deciding between a PDP and
MA-PD is only the first critical choice many Medicare beneficiaries face. In 2007, each
of the 34 MPD regions had between 45 and 66 PDPs from which to choose (Table 3.1).6
In 2008, between 47 and 63 PDPs were offered in each MPD region (Table 3.1).7 While
the intention behind the privatization of Medicare was to decrease prescription drug
prices through market competition, most probably did not anticipate the high number of
PDPs which would be offered regionally.8

Aside from the multitude of PDP offerings confronting beneficiaries, it has also
been reported that many such individuals are confused about the features of Part D
plans.4 Drug plan sponsors are permitted to vary any or all plan parameters (e.g.,
premium, deductible, co-pays, etc.) on an annual basis if so desired. The only caveat to
this being that the sponsor must demonstrate that the proposed PDP benefits are at least
as good as (actuarially equivalent) Medicare's standard benefit design (Table 3.2). Aside
from this, there exists little guidance as to how much annual PDP variability is
permissible. In many cases, monthly premiums have increased, gap coverage has been
reduced or eliminated, and formularies have become less inclusive of costly brand name
medications between 2007 and 2008.9

Further adding to the complexity in beneficiary understanding of MPD is the fact
that the MPD benefit is structured differently than most other health insurance plans.
While some PDP parameters, such as the monthly premium and annual deductible, are
similar to conventional insurance plans, the coverage provided after reaching the
deductible differs significantly (Table 3.2). Once a beneficiary's total drug costs reach
the deductible limit (Table 3.2), they enter into the initial coverage level. Under the MPD
Table 3.1 Composition and number of stand-alone prescription drug plans (PDP)
offered in each PDP region from 2007 and 20086 standard benefit, beneficiaries are responsible for 25% of the costs of their prescription
drugs while in the initial coverage level. It should be noted that despite Medicare's
standard benefit, most prescription drug plans opt for a tiered cost-sharing structure (co-
pays) as opposed to a flat co-insurance during this coverage level.1

Once reaching $2400 in total drug costs in 2007, or $2510 in 2008 (Table 3.2), the
beneficiary enters into the coverage gap, often referred to as the "donut hole." The
beneficiary typically pays the full cost (100%) of their prescription medications during
the coverage gap. Certain prescription drug plans offer limited coverage in the gap which
typically includes only generic medications. This limited prescription coverage continues
until the beneficiary's true out-of-pocket costs (TrOOP) reach $3850 in 2007 or $4050 in
2008. Money spent on monthly plan premiums, non-formulary drugs and/or drugs
covered by a PDP but excluded by Medicare law, and medications obtained at a non-
preferred pharmacy do not count towards a beneficiary's TrOOP spending.
Once the TrOOP threshold is met, the beneficiary enters catastrophic coverage in
which, paradoxically, the beneficiary typically pays the lowest co-pays of any coverage
level. In 2008, a beneficiary only paid the greater of 5% of total drug cost or a
$2.25/$5.60 co-pay for covered generic/brand medications, respectively, during
catastrophic coverage (Table 3.2). Many beneficiaries do not reach catastrophic coverage
and instead find themselves in the gap for several months towards the end of the year.
The Kaiser Family Foundation reports that 26% of MPD enrollees, who filled one or
more prescriptions and were not receiving governmental assistance (low-income subsidy
or Medicaid) with the cost of their prescription medications, reached the coverage gap in
2007." It was further reported that approximately 4% of all MPD enrollees in 2007 went
on to reach catastrophic coverage.11

The "dual-edged sword" of having a myriad of PDPs from which to choose
coupled with the complex nature of each PDP benefit has resulted in beneficiaries who
are unlikely to reassess their prescription drug plan options on an annual basis.3
Moreover, when making the decision about which PDP to choose, many beneficiaries
may enroll in a PDP that is not associated with the lowest annual cost based on their
prescription medication profile and usage patterns.4'12 Various factors have been
identified as potentially influencing the decision-making process of beneficiaries with
regards to PDP selection including: certain plan parameters (e.g., deductible or premium)
being weighed more heavily, loyalty to their current plan, brand name recognition of a
plan sponsor, or wanting to enroll in the same plan as one's spouse. ' All of these
factors aside, the annual variability in formulary coverage and parameters of each PDP
may result in beneficiaries who spend significantly more than necessary for their
prescription medications than those who evaluate PDP offerings on an annual basis. To
this effect, the only metric available for beneficiaries to compare the total costs of
different PDP choices is the estimated annual cost (EAC).
The EAC includes beneficiary co-payments/co-insurance, plan deductible,
monthly plan premiums, and if applicable, the amount paid during the coverage gap and
catastrophic coverage. EAC also includes the cost of all non-formulary and/or Medicare
excluded medications, which are excluded from TrOOP. Essentially, the EAC is the sum
of all out-of-pocket beneficiary expenditures that are expected to occur during a given
year. The all-inclusive nature of the EAC formula makes this the single most reliable
cost metric when comparing PDP offerings within a given region. The EAC of specific
PDPs can be obtained using either the Medicare Plan Finder Tool available on
www.medicare.gov or by calling 1-800-MEDICARE.
To date, published empirical research describing annual prescription drug costs
incurred by MPD beneficiaries is sparse. One study from 2006 reported the EAC of
MPD PDPs based on four hypothetical patients.14 A separate study relied on pharmacy
claims data to determine patient drug costs before and after the initiation of MPD in
2006; however, the study methodology employed did not account for the monthly
premiums paid by beneficiaries and therefore likely underestimated total out-of-pocket
beneficiary spending.2 In a recent study, the cost of MPD PDPs was shown to increase
for a cohort of Medicare beneficiaries between 2007 and 2008 in most MPD regions.1

Objectives
This study intends to determine if there is an opportunity cost associated with
neglecting to annually re-evaluate PDP offerings during the MPD open enrollment
period. In order to capture costs from the perspective of MPD enrollees, this study used
the Medicare Plan Finder Tool to calculate the expected cost to be incurred in 2008 by
Medicare-eligible beneficiaries who remained in the lowest EAC PDP from 2007, while
comparing that figure to the lowest EAC PDP in 2008. We also sought to identify the
proportion of PDPs with the lowest EAC in both 2007 and 2008.

Methods
A database of approximately 18,000 Medicare-eligible beneficiaries was provided
by the data analytics company, Medlnitiativesâ„¢. This database consisted of pharmacy
claims data provided by the pharmacy benefits management company, Catalyst Rx®. All
protected health information and unique patient identifiers were stripped from the
database prior to provision. A sample of 50 patients was randomly selected from the
provided database.

Pharmacy claims records for each study patient were obtained from the database
during the six-month period from January 1 to June 30, 2007 in order to identify the
patient's medication profile. Prescription medications taken on a regular basis, defined as
having at least an 84-day supply filled during the six month interval, were included in the
patient's medication profile. Patients without any medications meeting this criterion over
the six month time frame of interest were excluded from further analyses and replaced by
a new randomly selected patient.

A patient medication profile (e.g., medication name, strength, dosage form,
frequency of use) was created and saved on the Medicare website (www.medicare.gov)
for each sample patient. The Medicare Plan Finder Tool was used to determine the EAC
of each PDP offered in all 34 MPD regions for all sample patients. The EAC for each
PDP available in both 2007 and 2008 was obtained during December 2007 to reflect plan
costs reported to beneficiaries during the annual open enrollment period (November 15th
through December 31st). All Plan Finder results were web-captured as Adobe Acrobat®
files. Data from only 48 beneficiaries were included in region 18 and from 49
beneficiaries in regions one, six, 8, 22, and 23 due to file corruption during web-capture.
Each MPD PDP is assigned a permanent unique identification number (ID) by
Medicare. For each patient in each region, the ID of the plan with the lowest EAC in
2007 was identified; this ID was then used to retrieve the 2008 EAC for the same plan.
Some PDPs offered in 2007 were no longer available in 2008. Beneficiaries
enrolled in a PDP in 2007 that was not offered in 2008 were automatically switched to
another PDP offered by the same plan sponsor in accordance with each plan sponsor's
reassignment procedure. To determine how such a switch was made, the plan sponsor
was contacted via phone to find the exact plan reassignment for each region in which this
occurred. For example, a patient enrolled in Sierra Rx Plus in 2007, which was no longer
offered in 2008, was switched to Sierra Rx in 2008, if no action was taken by the
beneficiary during open enrollment.

Within each region, the 2008 EAC of the lowest cost PDP from 2007 was
compared to the lowest cost PDP from 2008. Paired t-tests were used to compare
differences in these two values for all study patients within each MPD region. Alpha was
set a priori to 0.05 for all statistical tests. Statistics were calculated using Microsoft
Excel 2007 (Redmond, WA.).

The opportunity cost (OC) was determined by the following formula:
OC = 2008 EAC(0f the lowest EAC PDP in 2007) - 2008 EAC(0f the lowest EAC PDP in 2008) (3.1)
In order to normalize for varying EAC between sample patients, the percent
opportunity cost (%OC) was calculated as follows:
%OC = [(OC)/(2008 EAC( of the lowest EAC PDP in 2008))] X 100 (3.2)
For each patient in each region, the 2008 ranking of the lowest cost plan from
2007 was calculated based on the 2008 EAC of all plans in the region. The percentage of
PDPs that had the lowest EAC in both 2007 and 2008 was recorded in each region.

Results
The study sample included six patients (12%) under the age of 65 who were
Medicare-eligible as a result of some reason other than age (e.g., end-stage renal disease,
permanent disability, or amyotrophic lateral sclerosis). The ratio of males to females was
almost 1:1 at 48% and 52%, respectively. The mean ± SD number of prescription
medications per study patient was 5.4 + 3.0. Fifteen patients (30%) had seven or more
prescriptions included in their profile with one patient profile consisting of 14
medications. Approximately 60% of the medications filled by the study sample were
generic.

The 2008 EACs of the lowest cost PDPs from 2007 were significantly higher (P < 0.001)
than the lowest cost PDPs of 2008 in all 34 MPD regions. As shown in Table 3.3, the
mean OC associated with this increase in EAC ranged from $277 in region 8 to $562 in
region 27. The largest observed OC in each region was over $1,000, with at least one
patient's OC exceeding $3,000 in 25 of 34 regions. The mean %OC of remaining in the
lowest cost plan from 2007 in 2008 ranged from 19% in region 31 to 58% in region 22.
Nationally, the lowest cost PDP from 2007 dropped, on average, to the 16th lowest
cost PDP in 2008 (Table 3.4). Excluding region 34 (AK), the largest observed rank
increase of the lowest cost PDP from 2007 for a study patient was at least 40 with a
national average rank of almost 50 in 2008. Furthermore, only 12%) of the PDPs with the
lowest EAC in 2007 remained associated with the lowest EAC in 2008.

Discussion
This is the first study to estimate the potential OC to MPD beneficiaries who are
enrolled in the least expensive PDP in one year and remain enrolled in the same PDP the
subsequent year. Based on the observed increase in cost of the least expensive PDP from
2007 in 2008, beneficiaries can be expected to incur a significant OC by neglecting to
evaluate their PDP options annually. Study findings suggest that beneficiaries who either
took the time to determine, or serendipitously found themselves in, the least expensive
PDP in 2007 should have undertaken the same endeavor for 2008 or faced the potential
risk of paying significantly more in out-of-pocket costs by remaining in the same PDP.
Our exploratory study examines a "best-case" scenario that assumes beneficiaries
were enrolled in the least expensive PDP in 2007. Even with this assumption, our
findings revealed that some beneficiaries who remained in the least expensive plan from
Table 3.3 Mean opportunity cost (OC), mean % OC, and largest observed opportunity
cost for study patients in each Medicare prescription drug plan (PDP) region

(N = 49 patients in Regions 1, 6, 8, 22, and 23; N = 48 patients in Region 18
2007 in 2008 may have paid thousands of dollars more in out-of-pocket expenditures
than necessary (Table 3.3). On average, with only one in eight (12%) PDPs being the
least expensive plan in both years (Table 3.4), the odds of a MPD beneficiary not needing
to switch plans on an annual basis appear low and the price of not re-evaluating steep.
Study results further suggest that in each region the least expensive PDPs from 2007 were
potentially one of the most costly in 2008 (Table 3.4).
The reported costs observed in this study may be an underestimate of the actual
OC incurred by most Medicare beneficiaries, as the prescription drug profile of some
beneficiaries may not be consistent between subsequent years. The addition of new
medications to a beneficiary's drug profile or beneficiaries utilizing a high number of
brand name medications may result in higher prescription drug costs, if the new or brand
name medication is not included in the formulary. The potential increase in out-of-
pocket drug costs is further complicated in light of the fact that many PDPs may alter
their cost-sharing structure between years.9 Because each PDP can change their
premium, deductible, cost-sharing structure (co-pays or co-insurance), gap coverage, and
formulary between years, it becomes evident that the use of the EACs of PDP offerings is
the most logical method of comparing such potential changes. Conversely, beneficiaries
taking a reduced number of medications or those who have switched from brand to
generic medications could reduce their out-of-pocket costs by switching to a PDP with a
more restrictive formulary and therefore lower premiums and/or lower co-pays/co-
insurance.

Despite the threat of significant avoidable costs, many beneficiaries may evaluate
plans based on non-monetary factors. Beneficiaries may be willing to pay more for a
plan that is accepted by their local pharmacy or has an easily accessible customer service
department. We have observed that the addition of customer service scores for each PDP
into the Plan Finder Tool has convinced some beneficiaries to pay more for a plan with a
better qualitative rating. Unfortunately, the reality is that many beneficiaries may falsely
believe that they are in the "best" plan or eschew the idea of revisiting the "hassle"
experienced during plan selection.4 Clearly there is a need for healthcare advocates to
educate MPD beneficiaries about possible PDP cost savings so they can make informed
decisions about their MPD enrollment.

Considering that many issues about MPD arise during the prescription filling or
patient medication-receipt process, pharmacists may be the first healthcare provider
sought for help with this complicated drug benefit. With many beneficiaries unaware of
the structure or nuances of MPD, it is vital for knowledgeable pharmacists to accurately
assist their patients. Doing so may minimize the number of beneficiaries who forgo or
delay filling their prescription medications due to unexpected or avoidable high out-of-
pocket costs. Pharmacists able to access and competently utilize the Medicare Plan
Finder Tool can potentially save MPD beneficiaries hundreds to thousands of dollars
annually.

Limitations
While a 50 patient sample may limit the generalization of study results to the
entire MPD population, the characteristics of our cohort were similar to those from the
2006 survey of Neuman et al.16 Their survey found that MPD enrollees obtained 5.0
prescription medications per month and 27.6% of beneficiaries filled seven or more
prescriptions monthly.16 The cohort used in this study appears reasonably similar with an
average of 5.4 prescriptions per month and 30% of beneficiaries filling seven or more
prescriptions each month. Additionally, 60% of all medications included in the patient
medication profiles were generics. This is comparable to a previously reported estimate
of generic utilization by MPD enrollees of 59.5%.] Despite these similarities, a larger
study sample is currently being examined in order to mitigate this potential limitation.
This study focused on calculating the opportunity costs for Medicare beneficiaries
who do not receive any additional governmental assistance, i.e. Medicaid or the low-
income subsidy, with their prescription medication costs. It would be of interest to see if
study findings can be replicated in such a population.

Conclusions
The variation in PDP structure and mechanics necessitates that beneficiaries
annually re-evaluate plan offerings during the open enrollment period (November 15' to
December 31st). Failure to do so may result in a significant increase in avoidable out-of-
pocket costs.

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