As we document below, a growing share of Part B drugs have inflation-adjusted coinsurance rates that have been increasing, not declining. In many cases, the coinsurance rate declines only briefly before rebounding back to the standard 20% rate. What’s more, these fluctuations have triggered huge jumps in patients’ out-of-pocket obligations for some drugs—even when a drug’s costs were falling.
Chalk off these coinsurance surprises to yet another unintended consequence of the IRA. Seniors who are expecting to see costs drop may find they are instead being taken for a rollercoaster ride.
PART B BASICS
Fee-for-service Medicare Part B covers 80% of the expenditures for Part B drugs. The beneficiary is responsible for the remaining 20 percent. Medicare Part B patients also pay premiums and have a deductible. For 2024, the standard monthly premium for Medicare Part B enrollees is $174.70, an increase of $9.80 (+5.9%) from the 2023 figure. (source) The annual deductible is $240, a $14 (+ 6.2%) increase from the 2023 figure. High income beneficiaries pay steeper, income-adjusted premiums.
Many Medicare beneficiaries now obtain Part B benefits as part of a Medicare Advantage (MA) plan. MA plans cannot charge more than the 20% coinsurance amount for Part B drugs from in-network providers, but can charge lower amounts or vary cost sharing.
Beginning in 2023, the Inflation Reduction Act of 2022 (IRA) altered the standard coinsurance rate. Manufacturers must now pay mandatory rebates on single-source Part B drugs whose payment amount in a calendar quarter, such as average sales price (ASP) plus 6%, increases more quickly than the general inflation rate. The inflation rate is measured using the Consumer Price Index for All Urban Consumers (CPI-U). These rebate payments are excluded from the computation of ASP.
For drugs with inflation-based rebates, beneficiaries’ coinsurance rates are computed based on the inflation-adjusted payment amounts.
In December 2023, CMS released revised guidance on the calculation of Part B rebates. (See Section 40 of Medicare Part B Drug Inflation Rebates Paid by Manufacturers.) The first rebate measurement period began on January 1, 2023. The first set of revised coinsurance rates were applied to the second calendar quarter of 2023, i.e., the period from April 1, 2023, to June 30, 2023.
For a deep dive on Part B and buy-and-bill drugs, see Chapter 3 of DCI's our 2023-24 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors.
ADJUST THIS
To date, CMS has released five quarterly reports on the revised coinsurance amounts. You can find the reports here: Coinsurance Adjustment for Part B Rebatable Drugs.
We identified 73 unique Part B drugs for which the coinsurance rate was adjusted during this five-quarter period. The chart below shows the total number of quarterly adjustments for these 73 drugs. As you can see, many of these drugs incurred multiple coinsurance adjustments. About half of these drugs had coinsurance rates that changed three or more times during the five-quarter period.
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GOING FOR A RIDE
Our analysis uncovered some surprises about coinsurance adjustments. An adjusted coinsurance rate depends on the relationships between two different factors: (1) the rate of change in a drug’s payment limit, and (2) the consumer price index. Consequently, the coinsurance rate can fluctuate up or down—and even return back to its original 20% rate.
That’s what has been happening. The chart below shows the frequency of coinsurance changes for the 73 drugs in the five quarterly reports.
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By definition, all 18 drugs identified for the first measurement period—the second quarter of 2023—had a coinsurance rate that dropped below 20%. The average coinsurance rate for these drugs was 18.59%, which was 141 basis points below the standard coinsurance rate of 20%.
But over time, this pattern of lower rates has not always repeated. For the third quarter of 2023:
- Eleven of the original 18 drugs had a coinsurance rate that increased by an average of 45 basis points compared with the drugs’ reduced rates in the second quarter. For two of these 11 drugs, the coinsurance rate returned to its original 20% value. Therefore, these drugs did not appear on the CMS list for the third quarter.
- Seven of the original set of 18 drugs had a coinsurance rate that decreased further.
- A further 22 drugs were added to the list.
Since then, the situation has become even murkier, and the churn has grown.
Dozens of Part B drugs have appeared on CMS’s quarterly lists. But contrary to the spin about declining patient costs, a growing share of these drugs have coinsurance rates that have increased—not decreased—from the previous quarter’s figure.
CLIMBING BACK
These theoretical issues have a direct—and sometimes unexpected—impact on patients’ out-of-pocket costs.
Consider the second quarter of 2024, when the coinsurance rate for 37 drugs increased by an average of 244 basis points from the previous quarter. In most cases, the adjusted coinsurance rates jumped back to the rate that the beneficiary would have paid in the absence of the IRA.
As the chart below shows, we found 28 of the 73 total drugs that have appeared on the CMS quarterly reports had (1) at least one coinsurance adjustment over the five-quarter CMS measurement period, and (2) a coinsurance rate that returned to the standard 20% figure.
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As you can see, many of these drugs had a deeply discounted coinsurance rate in the first quarter for 2024, followed by a sharp bounce back to 20% in the second quarter of 2024. For some drugs, these rapid increases translated into substantially higher out-of-pocket costs for patients in the second quarter of 2024.
Consider cefepime (HCPCS code J0701). Its payment limit cost grew by only 2.1% from the first to the second quarter of 2024. But due to the interaction with the inflation rate, its Part B coinsurance rate grew by 1,217 basis points, from 8.832% in 2024:Q1 to 20.00% in 2024:Q2. Consequently, a patient’s out-of-pocket obligation nearly tripled, from $0.44 per unit in 2024:Q1 to $1.15 per unit in 2024:Q2.
Here’s another oddity: a different manufacturer’s version of cefepime (HCPCS code J0703) had a payment limit that declined from the first to the second quarter of 2024. However, a patient’s out-of-pocket costs per unit more than doubled over the same period.
In other words, courtesy of the IRA, a patient who started therapy in March 2023 got an unexpected cost surprise in April 2023.
BUCKLE UP
We expect this volatility to get worse.
As we experience more quarters of these adjustments, it will become easier to anticipate how pricing affects coinsurance rates. For example, a manufacturer could utilize expectations about inflation—combined with the two-quarter lag in Part B payment rates—to modify its pricing and influence patients’ costs in advance of a potential new competitor.
Since this is an election year, these out-of-pocket surprises could also end up being a political issue. Perhaps there are some enterprising journalists who will be delving into the unexpected costs associated with the IRA. We fully expect Part D premiums to become a significant issue, so Part B costs may also be drawn into that conversation.
CMS is unlikely to acknowledge these uncomfortable realities. But unlike an amusement park rollercoaster, seniors should be fearful on the way up.
This article was coauthored by Adam J. Fein, Ph.D., and Bar Stern, M.S.
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