Drug costs skyrocket for many older Americans, despite Medicare coverage

To avoid liver damage, Roberta Solar, a 71-year-old cancer patient, has to take a medicine called ursodiol, perhaps for the rest of her life.

Next year her annual out-of-pocket costs for the drug will jump from $93 to $1,878 – a rise of almost 2,000%, according to information that she and her husband recently received from the insurer that covers their medicines under Medicare.  

The drug is just one of dozens of medications whose skyrocketing prices are increasingly hitting older Americans on fixed incomes. And that has renewed calls that the law be changed to allow Medicare, the government system that covers older Americans, to use its size and power to negotiate better drug prices.

“The cost of this generic drug has escalated beyond logic,” said Ken Solar, Roberta’s husband. The couple’s new out-of-pocket cost for ursodiol, he said, would consume more than a month of their combined Social Security checks.

When Congress added a prescription drug benefit to Medicare in 2003, the pharmaceutical industry did not just get millions of new customers. But Congress also placed language in the law explicitly banning Medicare from using its power to negotiate lower drug prices.

The argument for the ban on such bargaining was that each insurer offering a Medicare drug plan would compete and keep prices under control through their own negotiations with the pharmaceutical companies. 

For years, Medicare drug costs have been lower than analysts’ initial projections, which seemed to confirm the system was working.

Now, however, as is the case for prescription drugs covered by other programs, the cost to retirees is skyrocketing.

The cost of medicine per Medicare beneficiary rose 8.4% annually between 2013 and 2015, according to an analysis by the Kaiser Family Foundation, a nonprofit group that focuses on national health issues. That was more than twice as fast as the average 3.6% annual rise between 2006 and 2013, the group said.

In a Nov. 3 speech to pharmaceutical executives gathered at the Ritz-Carlton hotel in Washington, D.C., Andy Slavitt, the acting administrator of the Centers for Medicare and Medicaid Services, called the recent price hikes on dozens of drugs “unsustainable.”

“The more data that’s revealed,” Slavitt told the executives, “the more bad actors you find, and I’m telling you now: it’s too many.”

At a campaign rally on Jan. 25 in Farmington, N.H., Donald Trump told a crowd of hundreds of supporters that if elected he would seek to allow Medicare to negotiate on drug prices. He said such a change could save billions of dollars a year.

“We don’t do it. Why? Because of the drug companies,” Trump said then.

President-elect Trump’s staff did not return emails asking whether he still supported the change. His four-page policy statement on reforming the health system does not mention it.

The drug industry vigorously opposes any change. The companies say the current system of depending on insurers to negotiate with manufacturers is working to save on costs.

“Large, powerful purchasers negotiate discounts and rebates directly with manufacturers, saving money for both beneficiaries and taxpayers,” said Allyson Funk, a spokeswoman for the industry’s trade group, known as PhRMA.

She said proposals to change the program could end up “driving up premiums, reducing choice and restricting coverage.”

Funk pointed to a recent report paid for by PhRMA that found that actual medicine costs to patients and the government in the program officially called Medicare Part D were 35% below list prices in a dozen categories of widely used drugs. The report attributed the cost savings to discounts and rebates negotiated by insurers.

Earlier this month, however, Medicare officials released data showing that actual rebates and discounts were far less than those in PhRMA’s report. Officials said the Medicare drug insurers received $16 billion in rebates in 2014, or an average rebate of 17.5% off the list price, and that the program’s rebates were generally lower than what private employers’ and other insurance programs received.

“Part of the reason for this is that Medicare cannot harness its full purchasing power to negotiate for rebates across all Part D plans,” they wrote in the Nov. 14 report.

Medicare’s analysis also showed how the cost to taxpayers for the drug program is surging as prices continue to escalate. Taxpayers pick up 80% of a beneficiary’s medicine costs once they exceed a certain threshold. Total costs for the Medicare drug benefit above that threshold surged by 85% from 2013 to 2015 to $51.3 billion, according to the report.

In 2017, taxpayers will cover 80% of drug costs after beneficiaries have paid $4,950 out-of-pocket.

The drug that Roberta Solar needs shows how industry competition has failed to hold down some prices.

Ursodiol is a generic that has been sold for decades. It was available for a list price as low as 45 cents a capsule until May 2014 when one of the firms — Lannett Co. — raised its price per pill to $5.10. Lannett’s competitors quickly followed with their own price increases, with most offering the drug for about $5 a capsule.

“What did they do, put cocaine inside it?” asked Ken Solar, who lives with his wife in Garfield, N.J.

A spokesman for Lannett this week declined to comment.

Lannett executives have told shareholders that the U.S. Justice Department is investigating the company’s pricing practices.

Most Medicare patients were shielded from the rise in ursodiol’s price rise until this year.

Solar said his insurer, Coventry, which is owned by Aetna, changed the classification of ursodiol from a Tier 2 generic medicine, for which patients pay $9 for each prescription, to Tier 4, which includes mostly expensive specialty drugs. Under Solar’s plan, beneficiaries must pay 50% of a Tier 4 medicine’s price, shifting far more of the cost to the patient.

Walt Cherniak, an Aetna spokesman, said, “We moved it to a higher tier because of the rising price of the drug.”

Solar said he spent hours using the online tool at medicare.gov to find another plan whose annual out-of-pocket drug cost would be hundreds of dollars lower than Aetna’s, although the monthly premium will more than double. He said they will switch plans.

Medicare beneficiaries can use the online tool to research the cost of their medications and determine how their out-of-pocket expenses will change next year. Their annual cost for each drug can be sharply different under each plan. Patients have until Dec. 7 to change plans.

“The drug industry lobbyists’ influence over our healthcare system must stop,” Solar said. “Medicare has no say or control over rising drug prices when they should have everything to say.”

melody.petersen@latimes.com

Follow @melodypetersen on Twitter

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