Short Takes On News & Events

Medicare Could Save Billions By Scrapping Random Drug Plan Assignment

By Julie Rovner

June 2nd, 2014, 4:00 PM

A new study finds that Medicare is spending billions of dollars more than it needs to on prescription drugs for low-income seniors and disabled beneficiaries.

In 2013, an estimated 10 million people who participate in the Medicare prescription drug program, known as Part D, received government subsidies to help pay for that coverage. They account for an estimated three-quarters of the program’s cost. Most of those low-income enrollees are randomly placed in a plan that costs less than the average for the region where the person lives.

But even though these are lower-cost plans, they often end up costing the government and the beneficiary more. If Medicare instead assigned those people to a drug plan based on the actual drugs they took, it could save those patients hassle and money, and potentially save the government billions of dollars, according to the study by researchers from the University of Pittsburgh.  The study appears in the June issue of the policy journal Health Affairs.

Using a 5 percent sample of Medicare drug claims data from 2008 and 2009, the researchers calculated that if Medicare had matched beneficiaries to drug plans using “intelligent reassignment,” rather than random chance,  the government would have saved $5 billion in 2009. That’s because the government is responsible for picking up the copayments for many low-income beneficiaries.

Meanwhile, beneficiaries who are assigned to plans that don’t cover the drugs they take are on the hook for out-of pocket expenses, or have to go back to their doctors to get authorization for specific drugs or specific quantities of medications.

“We found that most people are not in the least-expensive plans that satisfy their medical needs,” said Yuting Zhang, the lead author of the study and an associate professor of health economics at the University of Pittsburgh.

Zhang and her colleagues created an algorithm that used patients’ previous drug claims to match them to a more appropriate plan. It resulted in not just a mean total saving of $743 per individual to the government, but also far fewer prescriptions subject to utilization review (19 percent rather than 29 percent) or quantity limits (19 percent rather than 27 percent).

In an interview, Zhang said it should be relatively simple for the federal government to change the way it assigns low-income beneficiaries to Part D plans. “They have much better data than we do,” she said. “And they’re already doing the assignment.”

But sometimes even simple things aren’t so simple. The random assignment of beneficiaries to plans (if beneficiaries don’t choose a plan) was a decision made specifically at the outset of the law to ensure that no one plan got a disproportionate number of very sick beneficiaries, according to a study from Georgetown University and the University of Chicago.

And changing the way Medicare assigns low-income beneficiaries to Part D plans would actually require a change in the law, according to Medicare officials. That means it would be up to Congress to make the savings happen.

3 Responses to “Medicare Could Save Billions By Scrapping Random Drug Plan Assignment”

  1. Elizabeth Quinn says:

    As a SHIP counselor, we always tell our auto-enrolled clients to check with us and we will do a plan finder to make sure they are in the proper plan. We go over cost, prior assignment, etc…I think this is a lot easier than waiting for Congress to do anything.


  2. The second cause of inflation is an in the real value of goods
    or services however this is usually offset by a decrease in prices elsewhere unless there
    is monetary inflation present in the system or
    there is an increase in the value of imports relative to exports.
    Unless you are working with a flat fee listing service, in which case you
    are not paying a commission, but rather a one-time flat fee, you want to be sure that the real estate agent isn’t cutting the commission too much or the agent is
    not going to be as determined to sell your home.
    You could be tying up your money and limiting your potential investment – if you were
    to purchase an investment property for $100,000 with cash you would have
    a single property.

  3. Nina Killingsworth says:

    I agree with Elizabeth. As an OSHIIP counselor we do run clients through the plan finder which is designed to help people find a D plan according to the drugs they have to take. Our usual advise is to consider cost, convenience and coverage and it has always worked out well. Waiting for Congress could take years to have any result.

    Nina Killingsworth