Medicare Part D: Use of Pharmacy Benefit Managers and Efforts to Manage Drug Expenditures and Utilization

Total expenditures for the Medicare Part D drug program exceeded $100 billion in 2016. Part D plan sponsors may use a PBM to provide drug benefit management services for Part D coverage, such as negotiating drug rebates and other price concessions and paying pharmacy claims. Policymakers have sought a better understanding of PBMs' roles in the drug supply chain and plans' and PBMs' efforts to manage Part D drug spending and use.

GAO was asked to examine the role of PBMs in the Part D program. This report examines, among other objectives, (1) the extent to which Part D plan sponsors use PBMs, (2) trends in rebates and other price concessions obtained by both PBMs and plan sponsors for Part D drugs, and (3) how PBMs earn revenue for services provided to Part D plans.

GAO analyzed Centers for Medicare & Medicaid Services (CMS) data on Part D plan sponsors' use of PBMs in 2016 as well as CMS drug expenditure, pricing, and rebate and other price concession data for all Part D drugs from 2014 through 2016 (the most recent available data at the time of our analysis). GAO reviewed service agreements between Part D plan sponsors and PBMs that were approved by CMS from January 2016 through May 2018 and had the highest enrollment as of June 2018. GAO spoke with CMS officials and 38 stakeholder groups including PBMs, Part D plan sponsors, pharmacy representatives and drug manufacturers.

Medicare Part D plan sponsors used pharmacy benefit managers (PBM) to provide 74 percent of drug benefit management services and performed the remaining 26 percent of services themselves in 2016—the most recent year of data at the time of our analysis. Plan sponsors are private entities that operate drug plans; PBMs are organizations that help manage drug benefits.

Rebates and other price concessions—discounts generally paid by manufacturers to Part D plan sponsors and PBMs after the sale of a drug at the pharmacy—grew faster than Part D expenditures from 2014 through 2016. Specifically, gross expenditures (the amount paid to pharmacies by plan sponsors, or by the PBM on the sponsor's behalf, and by the beneficiary) increased 20 percent, to $145.1 billion. During this period, rebates and other price concessions increased 66 percent, to $29 billion—20 percent of 2016 gross expenditures. Consequently, net expenditures (gross expenditures less rebates and other price concessions) increased only 13 percent, to $116.1 billion.

PBMs primarily earned Part D revenue through a volume-based fee paid by plan sponsors based on PBM-processed claims; a per-member, per-month fee paid by plan sponsors; or a combination of the two. PBMs also earned revenue from the rebates they negotiated with manufacturers for Part D drugs, which accounted for $18 billion of the $26.7 billion in rebates in 2016. PBMs retained less than 1 percent of these rebates, passing the rest to plan sponsors. Plan sponsors in turn may use rebates to help offset the growth in drug costs, helping control premiums for beneficiaries.

The Department of Health and Human Services provided technical comments on a draft of this report, which GAO incorporated as appropriate.

Medicare Part D is the voluntary program that provides outpatient  prescription drug coverage for Medicare beneficiaries who enroll in Part D  drug plans. Total Part D program expenditures were more than $100  billion in 2016, the most recent data at the time of our analysis. These  expenditures account for the amount paid to pharmacies by Part D plan  sponsors, or by a pharmacy benefit manager PBM (PBM) on the  sponsors’ behalf, and by beneficiaries for Part D drugs. Part D plan  sponsors—which are private companies—contract with the Centers for  Medicare & Medicaid Services (CMS) to provide this prescription drug  coverage to Medicare beneficiaries. Plan sponsors may have multiple  contracts with CMS, with each contract providing one or more distinct  drug plans. Plans may charge different monthly premiums and have  different beneficiary cost-sharing arrangements—such as deductibles and  cost-sharing for covered drugs.

There are a number of services associated with providing a drug benefit,  including establishing networks of pharmacies and negotiating rebates  and other price concessions from manufacturers. One drug benefit  management service that is often performed is utilization management, a  process to help ensure that the use of drugs and other medical services is  based on medical necessity, efficiency, and appropriateness. Part D plan  sponsors may perform these drug benefit services themselves or have  them performed by PBMs. PBMs have come under scrutiny as  policymakers have attempted to better understand their role in the drug  supply chain and plan sponsors’ and PBMs’ efforts to manage Part D  drug spending and use.

You asked us to provide an overview of the role of PBMs in the Medicare  Part D program. This report examines:  1.  the extent to which Part D plan sponsors use PBMs to deliver drug  benefit management services to Medicare beneficiaries;  2.  how PBMs earn revenue from the services they provide to Part D plan  3.  trends in rebates and other price concessions obtained by Part D plan  sponsors and PBMs from drug manufacturers and others;  4.  the extent to which prices for Part D drugs are discounted off of  manufacturer list prices; and  5.  what is known about savings and other effects of utilization  management services commonly used in Part D plans.

To examine the extent to which Part D plan sponsors contract with PBMs  to deliver drug benefit management services to Medicare beneficiaries,  we analyzed CMS Health Plan Management System (HPMS) data for  2016, the most recent available expenditure and rebate and other price  concession data at the time of our analysis. The data identified the entity  or entities responsible for performing each of 10 drug benefit  management services under plan sponsors’ Part D contracts. According  to CMS, these are the key drug benefit management services associated  with providing Part D drug coverage and include paying pharmacy claims  and negotiating rebates and other price concessions. CMS provided  HPMS data for the 624 Part D plan sponsor contracts that were effective  in 2016. For each contract, we used the HPMS data to determine the  extent to which a plan sponsor performed a service itself, contracted with  a PBM to perform the service, or performed the service in coordination  with a PBM. In this report, we refer to any organization (other than the  plan sponsor itself) that provides one of the 10 drug benefit management  services to a plan sponsor as a PBM.

To examine how PBMs earn revenue for the services they provide to Part  D plan sponsors, we examined 20 service agreements between PBMs  and Part D plan sponsors. These agreements generally contain detailed  information on the services that the PBM will provide, how the plan  sponsor will pay the PBMs for those services, and the rates pharmacies  will be paid for prescription drugs. The 20 service agreements were  those approved between January 2016 and May 2018 that had the  highest enrollment in June 2018, the most recent data available at the  time of our analysis.

We also examined PBM revenue reported to CMS by Part D plan  sponsors in their rebates and other price concession data reports—also  referred to as direct and indirect remuneration (DIR)—in 2016, the most  recent data available at the time of our analysis. These data include  information on any price concessions made after a drug is purchased  from the pharmacy by a beneficiary. One type of price concession is a  rebate, which is generally a discount paid by drug manufacturers to a Part  D plan sponsor, or by a PBM on the sponsor’s behalf, after a beneficiary  purchases a drug. These discounts may be offered in exchange for  better placement on a plan sponsor’s list of covered drugs, known as a  formulary, which encourages the use of the manufacturer’s drugs by  assigning them to tiers within the formulary that have lower beneficiary  cost sharing. Plan sponsors and PBMs may receive other price  concessions that lower the price of a drug. For example, plan sponsors  may receive fees from pharmacies based on their performance, which  affect prices for certain drugs since the performance fees affect the  amount the plan sponsor pays the pharmacy. The rebate and other  price concession reports also include information on any revenue earned  by PBMs through their retaining a portion of negotiated rebates. We  define the gross price of a drug as the total amount paid to the pharmacy  by the Part D plan sponsor, the PBM on the sponsor’s behalf, and the  beneficiary; gross price less rebates and other price concessions is the  net price. The rebate and other price concession reports to CMS also  include monies that are not concessions used in the calculation of net  price, such as certain sources of PBM revenue, including fees paid by  manufacturers to PBMs for certain services, as well as spread pricing— where PBMs earn revenue by keeping the difference between the amount  they charged the pharmacy and the amount the they charged the plan for  a drug.

To examine trends in rebates and other price concessions obtained by  Part D plan sponsors and PBMs from manufacturers and others for Part  D drugs, we analyzed plan sponsors’ gross and net expenditures for  these drugs from 2014 through 2016. For a given drug, gross  expenditures reflect what was paid to the pharmacy by the Part D plan  sponsor, PBMs on the sponsor’s behalf, and the beneficiary. To calculate  gross expenditures, we used Medicare prescription drug event (PDE)  data to calculate gross brand-name and generic drug expenditures and  utilization for all Part D plan sponsors. Net expenditures reflect any  rebates and other price concessions obtained by Part D plan sponsors  and PBMs after a beneficiary receives a drug. To calculate net  expenditures, we obtained rebate and other price concession information  and subtracted it from plan sponsors’ brand-name and generic gross  expenditures. We identified brand-name and generic drugs by grouping  expenditure claims with the same active ingredient, strength, dosage  form, and route of administration. We also used CMS Part D enrollment  data to examine gross and net expenditures per Medicare beneficiary for  sponsor contracts in 2016. We also examined differences in the amount  of rebates and other price concessions relative to expenditures obtained  by Part D plan sponsors that used a PBM, relative to those that did not.

To obtain more information on drugs that have the greatest fiscal impact  on the Part D program and its beneficiaries, we calculated gross and net  expenditures for the brand-name and generic drugs with the highest  expenditures, highest utilization, and highest expenditure per utilization in  2016. For both brand-name and generic drugs, we identified the following:  the 200 brand-name and 200 generic drugs with the highest expenditures  in 2016; the 200 brand-name and generic drugs with the highest  utilization in 2016 (based on number of 30-day prescriptions); and the 200  brand-name and generic drugs with the highest expenditures per  utilization (i.e., highest expenditure per number of 30-day prescriptions).  As a result of overlap in the groups of drugs, these criteria yielded lists of  the 444 unique highest expenditure, highest utilization brand-name drugs  and the 476 unique highest expenditure, highest utilization generic drugs.  Together, these 920 highest expenditure, highest utilization brand-name  and generic drugs accounted for 81 percent of Part D expenditures in  2016.

To examine the extent to which Part D drug prices are discounted off of  manufacturer list prices, we compared the median gross and net prices  for the 444 brand-name and 476 generic highest expenditure, highest  utilization drugs to (1) list prices established by manufacturers and (2) the  cost to pharmacies of acquiring these drugs. For the list price, we used  the 2016 average wholesale price (AWP)—which we refer to as  manufacturer list price—which reflects the average price manufacturers  suggest wholesalers charge pharmacies for a drug. For pharmacy  acquisition costs, which reflect the price pharmacies paid to obtain the  drug, we used retail community pharmacy acquisition cost data from  National Average Drug Acquisition Cost (NADAC) data. Part D plan  sponsors and PBMs acting on the sponsor’s behalf may negotiate prices  paid to pharmacies that are lower than manufacturers’ list price, but  higher than pharmacies’ acquisition costs. Separately, the plan sponsor  or PBM may also receive rebates and other price concessions that are  not part of their payments to pharmacies, but are reflected in their net  price. We also calculated a gross Part D drug price using 2016 PDE data  by dividing gross per unit expenditures for a given drug by the total  quantity dispensed for the drug. To calculate a net Part D price, we  subtracted rebates and other concessions per quantity dispensed from  the gross per unit price. We separated drugs sold in retail community  pharmacies from those sold in specialty pharmacies, as they dispense  low-volume and high-cost drugs to patients undergoing intensive  therapies for illnesses. For each drug, we then determined median  pharmacy acquisition costs, median gross Part D prices, and median net  Part D prices as a proportion of median manufacturer list prices.

To examine what is known about savings and other effects of utilization  management services commonly used in Part D plans, we conducted a  literature search for studies that examined the effect of utilization  management services in Part D (regardless of whether they were  provided by a PBM or another entity) on the following outcomes: (1)  financial costs or savings, (2) beneficiaries’ health indicators, and (3)  beneficiaries’ access to clinically appropriate medications or taking their  medications as prescribed (adherence). The literature search was  performed from April 2018 to July 2018 using keyword searches in  bibliographic databases, including ProQuest, EBSCO, and Scopus. We  limited our search to peer-reviewed studies published beginning in  2006—the year the Part D program began. We identified and reviewed  52 studies that met these criteria.

For all five of our objectives, we obtained the perspectives of  stakeholders on Part D plan sponsors’ use of PBMs as well as their  perspectives on sponsors’ efforts to control Part D expenditures and drug  utilization. These stakeholders consisted of representatives from 17  small, mid-sized, and large Part D plan sponsors; seven PBMs; three  drug manufacturers; a wholesaler and pharmacy services administrative  organization; and a patient advocacy organization.

For all of the data we analyzed, we took steps to assure their reliability,  including interviewing knowledgeable officials, conducting data checks,  and comparing to published information when available. After taking  these steps, we determined that the data were sufficiently reliable for the  purposes of our reporting objectives. Appendix I provides additional  details on our scope and methodology.

We conducted this performance audit from May 2017 to July 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings based  on our audit objectives.

Several entities are involved with, and pay different prices for, prescription  drugs as they move from the manufacturer to the beneficiary (a system  referred to as the prescription drug supply chain). In general,  manufacturers develop and sell their drugs to wholesalers, and  wholesalers then sell the drugs to pharmacies. In the Part D program,  CMS pays Part D plan sponsors to provide drug coverage, and plan  sponsors may charge beneficiaries monthly premiums in exchange for  coverage. Plan sponsors and PBMs negotiate reimbursement rates for  the drugs provided to beneficiaries. When the beneficiary purchases a  drug, the pharmacy is paid by the Part D plan sponsor, or through the  PBM on the sponsor’s behalf, and by the beneficiary through any  applicable cost-sharing. (See fig. 1 for a flow chart showing the  relationship between certain entities in the prescription drug supply chain  when a Part D plan sponsor uses a PBM.)

Services associated with developing and managing a prescription drug  plan performed by PBMs, Part D plan sponsors, or both, include:

Formulary development. Determining the list of drugs covered under  the plan (the formulary), including assignment of covered drugs to  tiers that correspond to different levels of beneficiary cost sharing and  placing restrictions on drugs included in the formulary. Part D plan  sponsors submit formularies for their plans to CMS for review and  approval annually.

Pharmacy network development. Creating a network of pharmacies  where beneficiaries may fill their prescriptions and negotiating drug  prices and reimbursement rates with those pharmacies. This can also  include developing “preferred networks,” whereby beneficiaries pay  lower cost-sharing and pharmacies agree to receive lower prices for  drugs in exchange for increased volume of prescriptions purchased.

Utilization management services. Utilization management services  include processes such as:

Prior authorization. A requirement that beneficiaries obtain  approval for a drug by the PBM or plan sponsor before obtaining  the drug if it is to be covered by the plan.

Step therapy. A requirement where more expensive drugs are  covered only if beneficiaries try less expensive alternatives first  and find them not to be effective.

Medication therapy management. A program required by CMS  designed to improve medication adherence and reduce the risk of  adverse drug events through discussion with targeted  beneficiaries and prescriber intervention.

Drug utilization review. A concurrent examination by the PBM or  plan sponsor of prescriptions at the time of purchase by the  beneficiary to assess safety considerations, such as potential  adverse interactions, and compliance with clinical guidelines  (including quantity and dose). These reviews can also occur  retrospectively to analyze beneficiaries’ drug utilization and  physicians’ prescribing patterns.

Negotiation of rebates from manufacturers. Negotiating rebates for  Part D plan sponsors with manufacturers in exchange for driving more  utilization of a manufacturer’s drug. This can include more favorable  placement on the sponsor’s formulary. The rebate terms do not have  to be disclosed to the public, but plan sponsors must report rebate  amounts to CMS.

PBMs may earn revenue from providing drug benefit management  services to Part D plan sponsors in a number of ways, including: (1)  payments from plan sponsors for administering services, such as drug  benefits claim processing; (2) retention of a portion of drug rebates that  PBMs negotiate on behalf of the plan sponsor and fees for managing and  distributing those rebates; (3) spread pricing; and (4) payments from  manufacturers for various services. PBMs may provide drug benefit  management services to Part D plan sponsors and commercial plans,  such as employer-sponsored health plans. Commercial plans may pay  PBMs in ways similar to Part D plans (e.g., rebate retention and claims  processing fees).

Part D plan sponsors are also required to provide access to all or  substantially all drugs covered under certain therapeutic classes of drugs,  known as Medicare protected classes: (1) anticonvulsants, (2)  antidepressants, (3) antineoplastics, (4) antipsychotics, (5) antiretrovirals,  and (6) immunosuppressants for the treatment of transplant. Plans are  limited in the formulary restrictions they can apply to these drugs.  Additionally, CMS generally requires Part D plan sponsors to provide  coverage for at least two drugs in each class.

CMS makes payments prospectively to Part D plan sponsors for  beneficiary drug coverage. CMS pays plan sponsors monthly, and these  payments are determined through annual bids submitted in June of the  preceding program year, which runs from January 1 through December  31. Those bids reflect the plan sponsors’ estimates of program costs and  rebates and other price concessions that the sponsor expects to receive  during the ensuing program year. At the end of the program year, CMS  reviews cost data submitted by plan sponsors through PDE records and  their submission of rebate and other price concession data and compares  estimated payments with actual costs incurred, with CMS either  reclaiming some funds or making additional payments. Thus, the final  plan payments by CMS are based on the costs actually incurred by Part  D plan sponsors minus rebates and other price concessions that are  either passed along to the plan sponsors or retained by the PBMs.

Implications of Rebates and Other Price Concessions

Rebates and other price concessions reduce the cost of the Part D  program to beneficiaries and the federal government. In developing their  bids, Part D plan sponsors may subtract rebates and other price  concessions that are passed along to them from their estimated drug  costs. When they do, rebates and other price concessions reduce a  plan sponsor’s estimate of liability that is reflected in bid amounts, which,  in turn, reduce beneficiary premiums because they are based, in part, on  the bid amount. This downward pressure on premiums is one reason that  premiums remained relatively unchanged between 2010 and 2015,  according to CMS, even though total gross Part D drug costs grew about  12 percent per year in that period.

Rebates have additional implications for Part D beneficiaries and the Part  D program more generally. Since beneficiary cost sharing is calculated  based on the price of the drug at the time of purchase (i.e., before rebates  are paid), beneficiaries pay higher cost sharing than they would if rebates  were paid at the point of sale. In addition, higher pre-rebate drug prices  may result in beneficiaries more quickly reaching the catastrophic  coverage phase, where the federal government’s share of drug costs  increases, and the plan sponsors’ share decreases.

Part D Plan Sponsors Used a PBM to Provide Most Drug Benefit Management Services in 2016, and Use Was Concentrated among Five PBMs

Seventy-four percent of the drug benefit management services provided  under 624 Part D plan sponsor contracts were performed by a PBM alone  or in conjunction with a Part D plan sponsor in 2016. We found that plan  sponsors performed the remaining 26 percent of services themselves. In  addition, a PBM was used to provide one or more of the 10 key drug  benefit management services under nearly all of the 624 Part D plan  sponsor contracts (99.7 percent), and the manner in which they used  them varied, as summarized below:

Number of drug benefit management services provided. Part D  plan sponsor contracts varied by the number of services provided by  PBMs. Eighty-nine percent of Part D plan sponsor contracts used a  PBM alone or in conjunction with a plan sponsor for at least half of the  10 drug benefit management services; 15 percent of contracts used a  PBM alone or with a plan sponsor for all 10 services.

Number of PBMs used. Part D plan sponsor contracts varied in the  number of PBMs used to provide one or more of the 10 drug benefit  management services. Fifty-four percent of contracts used one PBM,  35 percent used two or three PBMs, and 11 percent used four or more  PBMs.

Types of drug benefit management services provided. Part D plan  sponsor contracts varied by the drug benefit management services  they used a PBM to provide. PBMs alone or with the plan sponsor  more frequently provided claims adjudication (99 percent of Part D  plan sponsor contracts), pharmacy network development (92 percent),  and rebate and other price concession negotiations (83 percent). In  contrast, PBMs alone or with the plan sponsor less frequently  provided a pharmacy and therapeutics committee (45 percent),  enrollee appeals and grievance process-management (30 percent),  and enrollment processing (34 percent).

Part D plan sponsors mainly used five PBMs in 2016. Of the 103 PBMs  that provided at least one drug benefit management service to the 624  Part D plan sponsor contracts in 2016, the following five provided at least  one service to 528 (85 percent) plan sponsor contracts in 2016: CVS  Caremark, OptumRx, Express Scripts, Medimpact, and Argus. These  five PBMs also provided the largest number of services to Part D plan  contracts in 2016. For example, CVS Caremark, by itself or with another  PBM or plan sponsor, provided 17 percent of services that PBMs  provided to Part D plan sponsors’ contracts in 2016, the most of any  PBM.

See appendix II for more information on variation in Part D plan sponsor  contracts’ use of PBMs, factors that influence sponsors’ decision to use a  PBM, and additional information on the PBMs used by Part D plan  sponsors.

PBMs Primarily Earned Part D Revenue through Fees Paid by Plan Sponsors, Not Rebate Retention, and Reported That This Differed from PBMs’ Commercial Plan Revenue

Our review of 20 service agreements between Part D plan sponsors and  PBMs found that the primary revenue source for PBMs from services they  provided to Part D plans was (1) a volume-based fee paid by plan  sponsors based on the number of paid claims that the PBM processed;  (2) a flat monthly per-member, per-month fee paid by plan sponsors; or  (3) a combination of the two. Nineteen of the 20 service agreements that  we reviewed stated that PBMs were to be paid in one of these ways.  None of the service agreements tied these fees to the price of a drug paid  to the pharmacy. Representatives we interviewed from all seven of the  PBMs confirmed that a Part D plan sponsor-paid fee for the PBM’s  services was the primary way they earned revenue from their Part D  clients.

We also examined PBM revenue reported to CMS by Part D plan  sponsors in their rebates and other price concession data—also referred  to as direct and indirect remuneration (DIR)—in 2016, the most recent  data available at the time of our analysis. These data show that PBMs  passed nearly all rebates received from manufacturers through to Part D  plan sponsors in 2016. Part D plan sponsors reported to CMS that, of the  approximately $18 billion in rebates that PBMs negotiated with  pharmaceutical manufacturers that year, PBMs retained $74.3 million, or  about 0.4 percent, and passed through the remaining 99.6 percent to plan  sponsors.

The small amount of PBM rebate retention in the Part D program was  also reflected in the service agreements we examined and in our  interviews with PBM representatives. Sixteen of the 20 service  agreements that we reviewed included provisions that required the PBM  to pass through all rebates to the Part D plan sponsor; one other  agreement required at least 95 percent to be passed through to the plan  sponsor. The other three service agreements that we reviewed either did  not include provisions related to rebate retention or redacted such  information. Officials we interviewed from four of the seven PBMs told us  their PBMs passed through to Part D plan sponsors all rebates obtained  from manufacturers. Representatives of one PBM noted that plan  sponsors, in turn, may use rebates to help offset the growth in drug costs,  helping lower premiums for beneficiaries. Representatives from the other  three PBMs noted that the amount of retained rebates was relatively  small, consistent with the data reported to CMS.

PBMs and Part D plan sponsors may earn non-rebate revenue from  manufacturers for providing certain services. The service agreements we  examined included examples of this revenue, including fees for rebate  program administration, prescriber education programs, and programs  designed to ensure patients adhere to, and comply with,  recommendations regarding a particular prescription. The full amount  that PBMs and Part D plan sponsors earned from manufacturers for non- rebate services in 2016 was $516.5 million. Although CMS requires these  fees to be reported to the agency by plan sponsors, CMS does not break  out how much of the money was received by PBMs and how much was  received by plan sponsors.

PBMs earned little Part D revenue from spread pricing—keeping the  difference between the amount the PBM paid the pharmacy for a drug  and the amount the PBM charged the plan for the drug, from 2014  through 2016. PBMs earned about $300,000 from spread pricing in 2016,  according to CMS rebate and other price concession data. CMS data also  show that PBMs earned no revenue from spread pricing in either 2014 or  2015. PBMs generally earn more from spread pricing and rebate retention  from commercial plans than they do from Part D, according to officials  from three PBMs. Officials from two of these PBMs said CMS reporting  requirements have removed much of the incentive in Part D for PBMs to  earn revenue from spread pricing because of the complexity of the  requirements and the criticism from health care providers when reports to  CMS containing these amounts are publicized.

See appendix III for more information on Part D plan sponsor reporting to  CMS of the amounts of revenue—other than rebates and discounts—that manufacturers provide to their PBMs; and on PBM and Part D plan  sponsor perspectives on PBM revenue earned from spread pricing, the  effect of CMS requirements on spread pricing revenue, and differences  between PBMs’ Part D and commercial business lines.

Rebates and Other Price Concessions Grew Faster Than Part D Expenditures from 2014 through 2016

Growth in the amount of rebates and other price concessions provided by  manufacturers and others to Part D plan sponsors and PBMs outpaced  growth in gross and net Part D expenditures for all brand-name and  generic drugs from 2014 through 2016. Gross expenditures reflect what  was paid to the pharmacy by the Part D plan sponsor—or the PBM on the  sponsor’s behalf—and by the beneficiary for a given drug. Net  expenditures reflect any rebates and discounts obtained by plan sponsors  and PBMs after a beneficiary receives a drug. During this time, gross Part  D expenditures increased 20 percent, from $120.7 billion in 2014 to  $145.1 billion in 2016. The amount of rebates and other price  concessions obtained for these drugs increased 66 percent during the  same period, from $17.5 billion to $29 billion. As a result, rebates and  other price concessions as a proportion of gross expenditures increased  from 14 percent of gross expenditures in 2014 to 20 percent in 2016. This  resulted in an increase in net Part D expenditures of 13 percent, from  $103.2 billion in 2014 to $116.1 billion in 2016 (see fig. 2).

Rebates accounted for most of the total of rebates and other price  concessions obtained for Part D drugs from 2014 through 2016. Rebates  are generally paid by manufacturers to Part D plan sponsors, or PBMs on  sponsors’ behalf, after a drug is purchased from a pharmacy. In 2016,  rebates accounted for 92 percent ($27 billion) of the $29.1 billion in  rebates and other price concessions. The proportion was generally  consistent in 2014 and 2015, with rebates accounting for 93 and 91  percent of total rebates and other price concessions, respectively.

Pharmacy-related price concessions, which include any monies obtained  by plan sponsors and PBMs from a pharmacy after a beneficiary  purchases a drug, accounted for nearly all the rest of rebates and other  price concessions—7 percent—in 2016. The amount of pharmacy- related price concessions increased 295 percent from 2014 through 2016  ($538 million to $2.1 billion).

The 444 highest expenditure, highest utilization brand-name drugs  accounted for the majority of expenditures and received the vast majority  of rebates and other price concessions in 2016. These drugs accounted  for 65 percent of the $145 billion in Part D expenditures and received 90  percent of the $29.1 billion in rebates and other price concessions  obtained for Part D drugs. Of the 444 highest expenditure, highest  utilization brand-name drugs in 2016, the 200 highest utilization and the  200 highest expenditure drugs received a greater amount of rebates and  other price concessions than the 200 highest expenditure per utilization  drugs.  (See table 1.) Furthermore we found that brand-name drugs  received greater amounts of rebates and other price concessions than  generic drugs. Specifically, among the 444 highest expenditure, highest  utilization brand-name drugs and the 476 highest expenditure, highest  utilization generic drugs, brand-name drugs received 98 percent of  rebates and other price concessions in 2016.

Consistent with the results for all Part D drugs, from 2014 through 2016  rebates and other price concessions outpaced growth in gross and net  expenditures for the three groups of highest expenditure, highest  utilization brand-name drugs in our analysis (see table 2 for information  on these brand-name drugs). The three groups of brand-name drugs  generally had higher percent changes in rebates and other prices  concessions and in gross and net expenditures than did all Part D drugs,  which includes generics. For example, from 2014 through 2016, net  expenditures for the 200 highest expenditure brand-name drugs  increased 27 percent compared to a 13 percent increase for all Part D  drugs. Of the three groups, the 200 drugs with the highest expenditure  per utilization had the largest percentage increases in expenditures and  rebates and other price concessions. However, these drugs had relatively  low gross expenditures, rebates and other price concessions, and  utilization compared with the other two groups. Increases in  expenditures for the three groups of drugs in our analysis were primarily  accounted for by increases in the price per drug rather than changes in  utilization, as indicated by the growth in expenditures exceeded growth in  their utilization.

Net expenditures per beneficiary were similar if a Part D plan sponsor  used a PBM for rebate negotiations or if it conducted its own negotiations.  Specifically, in 2016, median net expenditures per enrollee were similar  for plan sponsors using a PBM and those that did not at $2,557 and  $2,570, respectively. Rebates and other price concessions accounted for  a median of 12 percent of gross Part D expenditures for plan sponsors  using a PBM for their negotiations and a median of 10 percent for plan  sponsors that did not. The majority—82 percent—of plan sponsors used  a PBM to obtain rebates and other price concessions on their behalf.  The plan sponsors that performed their own negotiations generally had  higher enrollment than those that used a PBM—a median of  approximately 47,000 beneficiaries, compared to approximately 13,000  beneficiaries (see table 3).

See appendix IV for additional information on expenditures and rebates  and other price concessions obtained for the 444 highest expenditure,  highest utilization brand-name Part D drugs in 2016. The appendix also  contains information on expenditures and rebates and other price  concessions obtained by the Part D plan sponsors whose representatives  we interviewed.

Part D Drug Prices Were Significantly Lower Than List Prices for Brand- Name Drugs in Retail Pharmacies; Drugs Sold in Specialty Pharmacies Received Fewer Discounts

In 2016, the highest expenditure, highest utilization brand-name drugs  sold in retail pharmacies received discounts off of manufacturer list prices  that were significantly higher than those sold in specialty pharmacies. Of  the 444 highest expenditure, highest utilization brand-drugs in our  analysis, 244 were sold in retail pharmacies. For this group, gross Part D  prices—those paid to the pharmacy by the Part D plan sponsor, PBMs on  the sponsor’s behalf, and the beneficiary—were 17 percent lower than  manufacturer list prices for these drugs. When rebates and other price  concessions were accounted for, net Part D prices were 41 percent lower  than manufacturer list prices. In contrast, the 200 drugs sold in specialty  pharmacies received fewer discounts off of manufacturer list prices. For  these drugs, median gross and net prices were 15 percent and 16  percent, respectively, lower than manufacturer list prices (see fig. 3). As  a result, drugs sold in retail pharmacies received median discounts (41  percent) that were 2.5 times larger than those sold in specialty  pharmacies (16 percent).

See appendix V for more information on prices for the highest  expenditure, highest utilization brand-name drugs and for information on  prices for selected generic drugs.

Utilization Management Was Generally Associated with Financial Savings and Improved Health Indicators, but Its Effect on Medication Adherence and Access Was Less Clear

Our review of 52 peer-reviewed studies indicates that utilization  management services were associated with financial savings or improved  beneficiary health indicators. However, the effects on ensuring that  beneficiaries take their medication as prescribed (adherence) and access  to clinically appropriate prescriptions were less clear. The studies  examined the effects of 10 different types of utilization management  services in three areas: (1) financial savings; (2) beneficiary health  indicators; and (3) beneficiary medication adherence and access:

Financial savings. Twenty-seven of the 36 studies we reviewed that  examined financial savings found that utilization management  services were associated with savings for the Medicare program, Part  D plans, or beneficiaries. For example, all eight studies that examined  the relationship between generic substitution and financial savings  found savings. Of the 10 studies that did not find financial savings,  five found no statistically significant impact of the utilization  management service on savings, three found the utilization  management service was associated with a decrease in savings, and  two found both an increase and decrease in savings for different types  of utilization management services.

Beneficiary health indicators. Twelve of the 20 studies that  examined beneficiary health indicators found that utilization  management services were associated with improvement, such as a  reduction in adverse drug events. Ten of the 12 studies that found  improvement examined either medication therapy management  programs or comprehensive medication reviews. The other two  studies that found improvement looked at drug utilization reviews,  which examine a beneficiary’s prescriptions to identify safety  considerations, such as potential adverse interactions with other  drugs and compliance with clinical guidelines. Of the eight studies  that found no improvement, one found that a health indicator  worsened, and four found improvement in at least one health indicator  and a decline in at least one other indicator.

Beneficiary medication adherence and access. Of the 15 studies  that examined the effect of utilization management services on  beneficiaries’ medication adherence or access to clinically appropriate  drugs, 10 examined medication therapy management programs or  comprehensive medication reviews. Seven of these 10 found  improvement in medication adherence. In contrast, the other five  studies that examined adherence and access found negative, mixed,  or no effects associated with prior authorization and step therapy. For  example, two studies examined the effect of prior authorization and  step therapy and found that these utilization management services  resulted in increased access problems. Two other studies examined  the relationship of prior authorization and step therapy adherence and  found a mixed impact. The remaining study examined the relationship  of only prior authorization with the time needed to access medications  and found no clinically significant impact.

Stakeholders we interviewed generally agreed that utilization  management services resulted in financial savings but differed in their  views regarding the effect of utilization management services on  beneficiaries’ medication adherence and access to clinically appropriate  drugs. In interviews with representatives from PBMs, Part D plan  sponsors, and a manufacturer trade association, these stakeholders  generally agreed that utilization management services resulted in  financial savings. While representatives from most Part D plan sponsors  and PBMs told us that utilization management services have resulted in  no adverse impact on medication adherence and access to prescriptions,  representatives of the three drug manufacturers we interviewed told us  that utilization management services limit medication adherence and  access to medications by, for example, delaying therapy to needed drugs.

See appendix VI for more information about the effects of utilization  management services from the peer-reviewed studies we examined and  the stakeholders we interviewed. See appendix VII for the articles  included in our literature review.

The Department of Health and Human Services provided technical  comments on a draft copy of this report, which GAO incorporated as  appropriate.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the  appropriate congressional committees and the Secretary of Health and  Human Services. In addition, the report will be available at no charge on  the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or dickenj@dickenj@gao.gov.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this report. GAO staff who made major  contributions to this report are listed in appendix VIII.

This appendix provides details on our scope and methodology in  addressing each of our five reporting objectives: (1) the extent to which  Part D plan sponsors contract with pharmacy benefit managers (PBM) to  deliver drug benefit management services to Medicare beneficiaries; (2)  how PBMs earn revenue from the services they provide to Part D plan  sponsors; (3) trends in rebates and other price concessions obtained by  Part D plan sponsors and PBMs from manufacturers and others for Part  D drugs; (4) the extent to which prices for Part D drugs are discounted off  of manufacturer list prices; and (5) what is known about savings and other  effects from utilization management services commonly used in Part D. In  addition, the appendix describes the steps we took to assure the reliability  of the data we analyzed.

For all our objectives, we obtained the perspectives of stakeholders on  Part D plan sponsors’ use of PBMs as well as information on sponsors’  efforts to control Part D expenditures and drug utilization. We spoke to  representatives from 17 small, mid-sized, and large Part D plan sponsors:  Aetna, Anthem, Banner Health, Cambia Health, Cigna, CVS, Express  Scripts, Kaiser, Health Care Service Corp, Health Plan of San Mateo,  Henry Ford Health System, Humana, Missouri Highways and  Transportation Commission, Rite Aid, United Health Care, University of  Pittsburgh Medical Center, and WellCare. We spoke with seven PBMs:  Argus, CVS Caremark, EnvisionRx, Express Scripts, MedImpact, Prime  Therapeutics, and OptumRx. To obtain other drug industry perspectives,  we spoke with representatives from three drug manufacturers: Eli Lilly,  Gilead, and Amgen. We also spoke with one entity that is both a  wholesaler and pharmacy services administrative organization:  AmerisourceBergen. Additionally, we spoke with other industry and  advocacy organizations, including groups representing drug  manufacturers, Part D plan sponsors, pharmacies, and PBMs: America’s  Health Insurance Plans, Biotechnology Innovation Organization,  Community Oncology Alliance, National Association of Chain Drug  Stores, National Association of Specialty Pharmacies, National  Community Pharmacists Association, Patients for Affordable Drugs,  Pharmacy Benefit Management Institute, Pharmaceutical Care  Management Association, and Pharmaceutical Research and  Manufacturers of America.

The Extent to Which Part D Plan Sponsors Contract with PBMs to Deliver Drug Benefit Management Services to Beneficiaries

To determine the extent to which PBMs provided services to Part D plan  sponsors, we analyzed the Centers for Medicare & Medicaid Services’  (CMS) Health Plan Management System (HPMS) data that identified the  entity or entities responsible for performing each of 10 key drug benefit  management services for plan sponsors’ Part D contracts in 2016, the  most recent available expenditure and rebate and other price concession  data at the time of our analysis. CMS provided HPMS data for the 624  Part D plan sponsor contracts that were effective in 2016. The data  contained the entity or entities reported by each plan sponsor as  performing each service. Using this information, we identified for each  contract whether the plan sponsor performed a service itself; contracted  with a PBM to perform the service; or performed the service in  coordination with a PBM. For a given contract, we counted as being a  PBM any entity that was not the plan sponsor that performed one or more  drug benefit management services. We manually reviewed those PBMs  against a list of PBM members from a PBM trade organization. We used  internet searches to confirm the entity was not the plan sponsor in  instances when it was not listed in the trade organization’s member  directory. In doing so, we also identified whether the plan sponsor shared  common ownership with the PBM responsible for providing the drug  benefit management service. For example, there were instances where  the plan sponsor and PBM were sister organizations owned by the same  parent company. In this situation, we counted the PBM as a separate  entity from the plan.

In addition, we analyzed PBM use by plan sponsor contract enrollment  size using CMS contract enrollment information from June 2016.  Additionally, we used HPMS data to examine plan sponsor contracts’  variation in the number of PBMs used, the types of services that PBMs  provided, and the use of PBMs by contract enrollment size. We also  identified the PBMs that provided the most services and described the  services they provided. Last, we interviewed Part D plan sponsor  representatives to understand the considerations that influenced their  decision about how and whether to use a PBM.

How PBMs Earn Revenue from the Services They Provide to Part D Plan Sponsors

To determine how PBMs earned revenue from services they provide to  Part D plan sponsors, we relied on four information sources. First, we  reviewed selected service agreements between PBMs and Part D plan  sponsors. The service agreements generally contain detailed information  on the services that the PBM will provide, how the plan sponsor will pay  the PBM for those services, and the rates that pharmacies will be paid for  Part D drugs. We asked CMS for a list of all service agreements it  approved between January 2016 and May 2018 that were in effect as of  June 2018. CMS provided us with a list of 119 service agreements. Using  June 2018 Part D publicly available enrollment data from CMS, we  obtained from CMS the 20 service agreements for Part D plans sponsors  with the largest enrollment in June 2018. While most of the service  agreements included sufficient information to determine how the PBMs  were paid, some did not, and, where appropriate, we noted these  instances in our findings.

Second, we examined PBM revenue reported to CMS by Part D plan  sponsors in their rebates and other price concession data—also referred to as direct and indirect remuneration (DIR)—for 2014, 2015, and 2016.  These rebate and other price concession submissions contain information  on the various sources of revenue and expenses incurred by PBMs and  plan sponsors.

Third, we reviewed applicable CMS regulations and guidance on the  reporting of PBM and Part D plan sponsor revenue and expenses.

Fourth, we interviewed PBM representatives about the extent to which  PBMs retained rebates or passed them through to plan sponsors and, in  some cases, the reasons for this decision. We also asked certain PBM  representatives whether their revenue sources for Part D, specifically  rebate retention and spread pricing, differed from PBMs’ and plan  sponsors’ commercial business and, if so, the reasons for any  differences.

Rebates and Other Price Concessions Obtained by Part D Plan Sponsors and PBMs from Manufacturers and Others for Part D Drugs

To examine rebates and other price concessions obtained by Part D plan  sponsors and PBMs from manufacturers and others for Part D drugs,  relative to overall Part D expenditures, we analyzed plan sponsors’ gross  and net expenditures for Part D drugs for 2014 through 2016, the most  recent data available at the time of our analysis. Gross expenditures  reflect what was paid to the pharmacy by the plan sponsor, PBMs on the  sponsor’s behalf, and the beneficiary for a given drug. Net expenditures  reflect any rebates and other price concessions obtained by Part D plan  sponsors and PBMs after a beneficiary receives a drug. To calculate  gross expenditures, we used Medicare prescription drug event (PDE)  data to calculate gross brand-name and generic drug expenditure and  utilization information for all Part D plan sponsors’ contracts. We used  Red Book, a compendium published by Truven Health Analytics, to  determine whether drugs were brand-name or generic. We then  identified individual brand-name and generic drugs by grouping  expenditure claims with the same active ingredient, strength, dosage  form, and route of administration (known as ISDR). We calculated brand- name and generic drug expenditures based on a drug’s ingredient cost,  dispensing fees, sales tax, and applicable vaccine administration fees.  We used PDE data to calculate gross expenditures for all Part D plan  sponsors at both the contract and plan sponsor level. We used DIR data  to determine the amount of rebates and other price concessions and  subtracted this amount from this data to calculate net expenditures. We  also obtained plan sponsor enrollment data using publicly available CMS  data for June 2016, which allowed us to calculate gross per beneficiary  expenditures.

We also examined differences in the amount of rebate and other price  concessions obtained relative to expenditures for Part D plan sponsors  that used a PBM relative to those that did not. We determined PBM  involvement in rebate and other price concession negotiations for  individual plan sponsors using 2016 HPMS data. We specifically looked  at each entity listed in HMPS as negotiating rebates and other price  concessions with drug manufacturers and others. We were able to  determine whether a PBM or plan sponsor performed this service for 197  plans sponsors. However, there were 20 Part D plan sponsors where a  PBM or plan was not solely listed as performing the rebate and other  price concession service. In these instances, we could not identify which  entity negotiated rebates and other price concessions and therefore  excluded them from this analysis.

To obtain more information on drugs that have the greatest fiscal impact  on the Part D program and beneficiaries, we calculated gross and net  expenditures for the brand-name and generic drugs with the highest  expenditures, highest utilization, and highest expenditure per utilization in  2016. For both brand-name and generic drugs, we identified the following:  the 200 brand-name and 200 generic drugs with the highest expenditures  in 2016; the 200 brand-name and generic drugs with the highest  utilization in 2016 (based on number of 30-day prescriptions); and the 200  brand-name and generic drugs with the highest expenditures per  utilization (i.e., highest expenditure per number of 30-day prescriptions).  As a result of overlap in the groups of drugs, these criteria yielded two  groups: the 444 highest expenditure, highest utilization brand-name drugs  and the 476 unique highest expenditure, highest utilization generic drugs.  These 920 drugs accounted for 81 percent of total Part D expenditures in  2016. We used drug-level rebate and other price concessions data to  calculate net drug prices for these drugs by subtracting rebate and other  price concessions for each drug from gross expenditures.

The Extent to Which Prices for Part D Drugs Are Discounted Off of Manufacturer List Prices

To determine the extent to which Part D drug prices are discounted off of  manufacturer list prices, we compared the median gross and net prices  for the 444 brand-name and 476 generic highest expenditure, highest  utilization drugs to (1) list prices established by manufacturers, and (2)  the cost to pharmacies of acquiring these drugs. For list prices, we used  2016 average wholesale price (AWP) data from Truven Health Analytics’  Red Book. AWP is a common benchmark drug price used in the  negotiation of payment rates between Part D plan sponsors and  pharmacies. Because AWP is updated on an ongoing basis, we  calculated a day-weighted per unit price that takes into account the  number of days that the reported price was in effect in 2016. We then  determined the median AWP price for each drug product based on the  ISDR. We refer to the median price as the manufacturer list price.

For pharmacy acquisition costs, which reflect the price pharmacies paid  to obtain the drug, we used retail community pharmacy acquisition cost  data from National Average Drug Acquisition Cost (NADAC) data.  NADAC does not contain data from non-retail pharmacies, such as mail- order or specialty pharmacies. For our groups of 444 brand-name and  476 generic drugs, we separated drugs sold in retail community  pharmacies from those sold in specialty pharmacies. If a drug did not  have pharmacy acquisition cost data from NADAC, we considered that  drug to be sold in specialty pharmacies and, thus, a specialty drug.

We used 2016 PDE data to determine the gross per unit Part D price for a  drug by dividing the gross expenditures for the drug by the total quantity  dispensed of it. For example, a drug that had 1,000 units prescribed to  Medicare beneficiaries and $5,000 in gross expenditures would have a  gross per unit price of $5. We determined net per unit Part D prices for  the drugs in our two study groups by dividing the amount of rebates and  other price concessions for each drug by the quantity dispensed of it and  then subtracting the amount of rebates and other price concessions per  quantity from the gross Part D price for each drug.

For each drug, we then determined the median pharmacy acquisition cost  (if available), median gross Part D price, and median net Part D price as a  proportion of median manufacturer list price by dividing each price by the  median manufacturer list price. We then reported the median value for  these pricing points for the highest expenditure, highest utilization drugs  in our analysis.

Analysis of Literature on Effect of Utilization Management Services

To determine what is known about the impact of utilization management  services that PBMs commonly provide to Part D plan sponsors, or that  plan sponsors may perform themselves, we conducted a literature search  for studies that examined the effect of utilization management services in  Part D (regardless of whether they were provided by a PBM or another  entity) on the following outcomes: (1) financial costs or savings, (2)  beneficiaries’ health indicators, and (3) beneficiaries’ access to clinically  appropriate medications or taking their medications as prescribed  (adherence). The literature search was performed from April 2018 to  July 2018 using keyword searches in bibliographic databases, including  ProQuest, EBSCO, and Scopus. We limited our search to studies  published beginning in 2006—the year the Part D program began.

For our searches, we developed a list of search terms for our literature  review by reviewing relevant background documentation and several  database searches. The search terms included: “utilization management,”  “prior authorization,” “quantity limits,” “step therapy,” “generic  substitution,” “drug utilization review,” “quantity edit,” “medication therapy  management,” and “comprehensive medication review,” combined with “access,” “adherence,” “health benefit,” “clinical outcome,” “generic use,”  “cost effectiveness,” “savings,” “costs,” and “Medicare.”

The literature search generated 700 studies. We reviewed this list by  examining the abstracts for those studies that addressed the effects of  utilization management services in Part D and were published in peer- reviewed journals. We identified 48 studies that met our criteria then  added four more that met the criteria from several literature reviews we  examined, resulting in a final group of 52 peer-reviewed studies that we  analyzed. We analyzed these studies to group them by type of utilization  management service evaluated and type of outcome measured. We  documented any methodological limitations of these studies but did not  exclude any of them on this basis. See the bibliography in Appendix VII  for a list of the 52 studies in our review.

We also interviewed PBMs, plan sponsors, and drug manufacturers to  obtain their views regarding the impact of utilization management  services in Part D plans and asked them to recommend additional studies  on utilization management services. We did not assess the methodology  or data reliability of the studies provided to us by these drug supply chain  stakeholders; none of them met our criterion of being published in peer- reviewed journals. We used these studies to better understand  stakeholder perspectives.

To ensure the data used to produce this report were sufficiently reliable,  we took several steps. We performed data reliability checks on the HPMS  data by reviewing the data for missing values and errors, checking the  information against other publicly available sources, and interviewing  knowledgeable agency officials. We performed data reliability checks on  the PDE and DIR data by reviewing relevant documentation, checking the  data for outliers and errors, and interviewing knowledgeable agency  officials. We performed data reliability checks of the AWP and NADAC  data sets by testing the data for missing data and outliers and reviewing  relevant documentation. After taking these steps, we determined the data  were sufficiently reliable for the purposes of our reporting objectives.

We conducted this performance audit from May 2017 to July 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings based  on our audit objectives.

Appendix II: Medicare Part D Plan Sponsors’ Use of Pharmacy Benefit Managers (PBM)

Appendix II: Medicare Part D Plan Sponsors’  Use of Pharmacy Benefit Managers (PBM)

This appendix provides additional detail on the use of PBMs by Part D  plan sponsors to provide prescription drug benefit management services  to Medicare beneficiaries.

We examined Centers for Medicare & Medicaid Services’ (CMS) data to  identify the 10 key drug benefit management services provided by PBMs  under 624 Part D plan sponsor contracts in 2016, the most recent  available expenditure and rebate and other price concession data at the  time of our analysis, and found the following variation in plan sponsor use  of PBMs:

Services provided by PBMs. Part D plan sponsors’ contracts varied  by the services provided by PBMs in 2016. Plan sponsors’ use of a  PBM for drug benefit services—either alone or with the plan  sponsor—for their 624 contracts varied from 30 percent for enrollee  appeals and grievance process-management to 99 percent for claims  adjudication. For seven of the 10 drug benefit management services,  PBMs—either alone or in conjunction with the plan sponsor—provided  services to more than half the sponsor contracts (see fig. 4).

Number of PBMs used. Part D plan sponsor contracts varied in the  number of PBMs used to provide one or more of the 10 drug benefit  management services. For example, 54 percent of plan sponsors’  contracts used a single PBM, while 11 percent used four or more  PBMs (see fig. 5).

Use of PBMs by enrollment. Smaller Part D contracts—those with  contract enrollment below the median enrollment of all Part D  contracts—used a PBM more often than larger contracts—those with  enrollment at or above the median. For instance, 87 percent of  smaller Part D plan sponsor contracts used a PBM alone or with the  plan sponsor for rebate and price concession negotiations, compared  to 77 percent of larger contracts. Similarly, 54 percent of smaller Part  D contracts used a PBM alone or with a plan for a pharmacy and  therapeutics committee, compared to 35 percent of larger contracts.

Use of financially related PBMs. Part D plan sponsors’ contracts  varied by their use of PBMs with which they were related by common  ownership—either as a subsidiary or a sister company. In 2016, plan  sponsors used a PBM with which they were related by common  ownership for 17 percent of the 624 Part D plan sponsors contracts.  Larger contracts—those with enrollment at or above the median— were more likely to use a PBM related by common ownership than  smaller contracts. Larger contracts used a financially related PBM for  24 percent of drug benefit management services, compared to 10  percent of drug benefit management services provided to smaller  contracts.

Factors Influencing Plans’ Decisions to Use a PBM

The Part D plan sponsor representatives with whom we spoke noted  several considerations that influenced their decision about how and  whether to use a PBM. One plan sponsor noted that small plans may lack  the resources to conduct their own rebate negotiations and, therefore,  may use a PBM instead. Three other plan sponsors noted they switched  from conducting their own rebate negotiation with manufacturers to using  a PBM. Two plan sponsors said this switch was due to PBMs’ ability to  obtain larger rebates than the plan sponsor could, and the third  determined a PBM would help it achieve the best value and quality, while  meeting Part D’s regulatory requirements.

In contrast, representatives of three other Part D plan sponsors noted  advantages of performing drug benefit management services themselves.  For example, one plan sponsor noted that it performs almost all drug  benefit management services internally, as it believes doing so improves  quality through better communication and care coordination with  pharmacies. Another plan sponsor noted the decision not to contract out  certain services to a PBM may be influenced by a desire for more  customization over formulary management and greater control over prior  authorization. Representatives of one plan sponsor noted that their plan  does not use a PBM because they believe they are more effective in  developing formularies with better utilization management and greater  use of generic drugs than are PBMs.

Variation in the Number of Services Provided by PBMs to Part D Plan Sponsors

Our analysis of CMS data for the 624 Part D plan sponsor contracts found  that the five PBMs that provided the largest number of services to Part D  plan sponsors’ contracts in 2016 also generally provided a full range of  PBM services to them. Four of the top five PBMs provided all 10 drug  benefit management services to plan sponsors’ contracts while the fifth  PBM conducted claims adjudication but used an intermediary to conduct  rebate negotiations. (See table 4). Furthermore, the top five PBMs  provided a high proportion of the services that Part D plan sponsors most  commonly used a PBM to provide. For example, CVS Caremark provided  claims adjudication to 144 (23 percent) of Part D plan sponsor contracts,  and OptumRx provided this service to 138 (22 percent).

In contrast, we found that Part D plan sponsors used a large number of  PBMs to provide a limited range of drug benefit management services.  For example, 48 percent of PBMs provided only one type of drug benefit  management service to plan sponsors’ contracts, and 22 percent of  PBMs provided only one service to only one plan sponsor contract. For  instance, there were 10 unique entities counted as PBMs in our analysis  that provided only customer service support to one plan sponsor contract.  One PBM representative noted in an interview that it is relatively common  for plan sponsors and PBMs to contract with other vendors to provide  additional assistance with drug benefit management services. One plan  sponsor told us, for example, that its PBM uses a vendor to manage  customer service calls.

Appendix III: Information on Pharmacy Benefit Manager (PBM) Revenue Earned from Manufacturers and from Spread Pricing

This appendix provides additional detail on (1) non-rebate revenue that  PBMs may earn for services provided to manufacturers and Medicare  Part D plan sponsors, and (2) PBM perspectives on Centers for Medicare  & Medicaid Services (CMS) policies relating to spread pricing in Part D.

Non-rebate Revenue That PBMs May Earn for Services Provided to Manufacturers and Part D Plan Sponsors

PBMs and Part D plan sponsors may earn non-rebate revenue from  manufacturers for providing certain services. Even though this money is  reported to CMS as part of the rebate and other price concession  submission, not all of it is considered rebates or other price concessions,  which will lower plan liability in determining bids and thereby lower  premiums. Of the $516.5 million in non-rebate revenue paid by  manufacturers in 2016, $440 million, or about 85 percent, represented the  amount paid for the services that exceeded the fair market value of the  service and is considered rebates and other price concessions. These  may be used to reduce the drug costs incurred by the plan sponsor.  Therefore, this revenue factors into bid determinations and may be used  to reduce premiums.

The remaining $78.6 million in payments from manufacturers were  considered “bona fide service fees”—fees paid by manufacturers to Part  D plan sponsors and PBMs for services that the manufacturer would  otherwise perform, or contract for, and that represented the fair market  value of those services. Such fees do not reduce the plan sponsor’s drug  costs and, therefore, could not factor into reducing premiums.  The  determination of a bona fide service fee as reported to CMS is made by  the drug manufacturer and the Part D plan sponsor and is not routinely  evaluated by CMS, agency officials told us. However, CMS requires that  the PBM and manufacturer have information documenting the fair market  value of the service.

Stakeholder Perspectives on PBM Revenue Earned from Spread Pricing, Rebate Retention, and Differences from the Commercial Sector

CMS requires Part D plan sponsors to report revenue earned from  rebates retained by the PBM. This revenue increases the plan’s liability,  which increases the amount of plan bids and, therefore, result in higher  premiums. In contrast, rebate revenue passed through by PBMs to Part D  plan sponsors lowers the plan’s liability, reduces plans bids, and,  therefore, lowers beneficiary premiums.

Some PBMs earn more revenue from spread pricing in their commercial  business than in Part D, officials from three PBMs told us. Officials from  two of these PBMs noted that CMS requirements create a disincentive to  engage in spread pricing that is not present in the commercial sector.  Beginning in 2010, CMS required that plan sponsors base the amount of  beneficiary cost-sharing on the amount received by the pharmacy for a  drug—known as the “pass-through price.” CMS also required that an  estimate of rebates or other price concessions be included in the  administrative costs submitted by the plan sponsor for bid  determinations. Part D plan sponsors can still agree to pay the PBM  based on the higher price of the drug without accounting for rebates,  known as the lock-in price. However, the difference between that amount  and the pass-through price would increase the bid determination and  ultimately increase the premiums that plans charge beneficiaries.   Because there are no similar requirements pertaining to the commercial  prescription drug benefit market, spread pricing is more common there,  CMS officials told us.

Appendix IV: Expenditures and Rebate and Other Price Concession Information for Medicare Part D Drugs

This appendix provides information on (1) pharmacy-related price  concessions for all Medicare Part D drugs and (2) expenditure and rebate  and other price concession information for the 444 highest expenditure,  highest utilization brand-name Part D drugs in 2016. The appendix also  contains additional information on expenditures and rebates and other  price concessions obtained by the 16 Part D plan sponsors whose  representatives we interviewed.

Pharmacy-Related Price Concessions for All Part D Drugs

The amount of pharmacy-related price concessions obtained by Part D  plan sponsors, or pharmacy benefit managers (PBM) on plan sponsors’  behalf, increased 295 percent from 2014 through 2016, from $538 million  to $2.1 billion (see fig. 6). These monies account for any adjustments to  the price of the drug paid to the pharmacy after the point sale, such as a  pharmacy returning money that was overpaid by the plan sponsor or vice  versa. It can also include monies paid based on pharmacies’ performance  in meeting agreed-upon performance metrics—for example, fees a  pharmacy pay plan sponsors, or bonuses pharmacies receive from plan  sponsors, based on their performance. In 2016, Part D plan sponsors  received $2.3 billion from pharmacies and paid out $211 million, for a net  of $2.1 billion in pharmacy-related price concessions.

Five of the seven PBMs and seven of the 12 Part D plan sponsors whose  representatives we interviewed said they have performance-based  arrangements with pharmacies. One plan sponsor noted that its  performance agreement involves paying bonuses to pharmacies that  exceed performance measures, while charging fees to pharmacies that  did not meet the measures. The sponsor said this is part of an attempt to  move from paying for volume to paying for value. Another plan sponsor  told us there has been an improvement in pharmacy performance as a  result of the program.

Representatives from pharmacy industry groups said these pharmacy- related fees have put increasing pressure on pharmacies. For example,  one group noted there is no standardization across measures with each  plan sponsor using its own measures, and it is difficult for pharmacies to  tie a fee to a specific pharmacy location or claim. Another group noted  that fees may be imposed on pharmacies for performance measures not  directly applicable to the pharmacy. For example, the group said specialty  pharmacies have been assessed fees for beneficiary lack of adherence to  maintenance medications, such as blood pressure medications, that  these pharmacies do not commonly provide.

Expenditure and Rebate and Other Price Concession Information for 444 Highest Expenditure, Highest Utilization Brand-Name Drugs

PBMs and Part D plan sponsors obtained rebates and other price  concessions for 441 (99 percent) of the 444 highest-expenditure, highest- utilization brand-name drugs in 2016. The amount of rebates and other  price concessions for each drug ranged from $1,300 to $1.8 billion in  2016, with a median of $3.3 million. Rebates accounted for $24.5 billion  of the $26 billion in rebates and other price concessions (94 percent)  obtained by plan sponsors and PBMs for these 444 drugs. As a  proportion of gross Part D expenditures—the amount paid by plan  sponsors, or the PBM on the sponsors’ behalf, and by beneficiaries—for  the 444 drugs ranged from -0.5 percent to 70.5 percent. (See fig. 7.)

Expenditures and Rebates and Other Price Concessions for the 444 Highest Expenditure, Highest Utilization Part D Brand-Name Drugs, by Therapeutic Drug Class, 2016

Expenditures and rebates and other price concessions varied by  therapeutic class for the 444 highest expenditure, highest utilization drugs  in 2016. Among those with 10 or more drugs in their class, gross  expenditures ranged from $2.9 billion to $21.2 billion, and rebates and  other price concessions ranged from $170 million to $8.7 billion (see table  5). Four classes—endocrine metabolic agents, anti-infective agents,  respiratory agents, and central nervous system agents—accounted for 54  percent of the gross Part D expenditures, and 62 percent of rebates and  other price concessions for the 444 highest expenditure, highest  utilization drugs. When accounting for rebates and other price  concessions, these drugs accounted for 51 percent of net Part D  expenditures.

Gross and Net Part D Expenditures Varied among Selected Part D Plan Sponsors in 2016

Rebates and other price concessions as a proportion of gross  expenditures varied from 4 percent to 27 percent in 2016 for the 17 Part  D plan sponsors whose representatives we interviewed. Gross Part D  expenditures per beneficiary ranged from $1,772 to $5,583, and net Part  D expenditures per beneficiary ranged from $1,687 to $4,837 (see table  6).

Appendix V: Information on Discounts Off Manufacturer List Prices for Brand-Name and Generic Medicare Part D Drugs

This appendix contains additional information on the gross and net  discounts for the highest expenditure, highest utilization brand-name and  generic Medicare Part D drugs in 2016.

Information on the Extent to Which Brand-Name Part D Drugs Were Discounted Off Manufacturer List Prices

The amount of discounts in 2016 for the 444 highest expenditure, highest  utilization brand-name drugs varied by whether they were sold in retail or  specialty pharmacies. Discounts also varied by whether the brand-name  drugs were highest expenditure, highest utilization or highest expenditure  per utilization drugs. Of the 444 highest expenditure, highest utilization  brand-name drugs, 244 were sold in retail pharmacies and 200 were sold  in specialty pharmacies.

Brand-name retail drugs. The three groups of drugs all had  pharmacy acquisition costs that were 81 percent of manufacturer list  prices and gross Part D prices that were between 83 and 84 percent  of manufacturer list prices in 2016. However, the net prices varied,  ranging from 55 percent of manufacturer list price for the highest  utilization drugs to 77 percent for the highest expenditure per  utilization drugs (see table 7).

Brand-name specialty drugs. The 38 highest expenditure drugs and  187 highest expenditure per utilization drugs sold in specialty  pharmacies had median gross prices that were between 84 and 85  percent of manufacturer list price and net prices that were 84 percent  of manufacturer list price in 2016.

We also found variation in brand-name prices across therapeutic classes  for the 244 highest expenditure, highest utilization Part D drugs sold in retail pharmacies. In 2016, median gross Part D prices for the brand- name drugs sold in retail pharmacies were similar across the nine  therapeutic classes we analyzed, ranging from 81 percent to 84 percent  of the manufacturer list price. However, there was a much wider range  among median net prices, from 43 percent to 83 percent of manufacturer  list price. Anti-infective agents had the lowest percentage point changes  in their prices from gross to net (1 percentage point), while endocrine  metabolic agents, cardiovascular agents, respiratory agents,  ophthalmologic agents, and genitourinary agents had the largest  changes, with declines from gross to net of greater than 30 or more  percentage points (see table 8).

In contrast, there was little variation in both median gross and net prices  across all therapeutic classes for brand-name drugs sold in specialty  pharmacies. The range in median gross prices as a proportion of  manufacturer list prices across the six therapeutic classes was 83 percent  to 86 percent, and the range in median net prices as a proportion of  manufacturer list prices was 80 percent to 84 percent.

Information on the Extent to Which Generic Part D Drugs Were Discounted Off Manufacturer List Prices

In 2016, discounts off of the manufacturer list price varied by whether the  generic drug was sold in retail pharmacies or in specialty pharmacies. Of  the 476 highest expenditure, highest utilization generic drugs in our  analysis, the 367 sold in retail pharmacies had a median gross and net  Part D price that were 66 percentage points lower than the manufacturer  list price, and 13 percentage points higher than the pharmacy’s cost of  acquiring the drugs.

The 109 generic drugs sold in specialty pharmacies received far fewer  discounts off of manufacturer list price than drugs sold in retail pharmacies. Median gross and net prices for those drugs sold in specialty  pharmacies were both 26 percentage points lower than manufacturer list  prices (see fig. 8). Therefore, generic drugs sold in retail pharmacies  received median discounts (66 percent below manufacturer list prices)  that were 2.5 times larger than those generic drugs sold in specialty  pharmacies (26 percent below manufacturer list prices).

We also found pricing variation by whether the generic drugs were in the  200 highest expenditure, 200 highest utilization group, or the 200 highest  expenditures per utilization group.

Generic retail drugs. Of the 367 generic drugs sold in retail  pharmacies, 200 were in the group of the 200 highest utilization  generic drugs, 198 were in the group of the 200 highest expenditure  generic drugs, and 91 were in the group of the 200 generic drugs with  the highest expenditure per utilization. We found that the gross Part  D price for the highest utilization drugs was 14 percent of the  manufacturer list price, while the gross price for the highest  expenditure drugs was 34 percent of the manufacturer list price.  However, the Part D gross price for the highest expenditure per  utilization drugs was 63 percent of the manufacturer list price. The  difference in gross and net Part D price as a percentage of  manufacturer list price was one percentage point or less for all three  groups of drugs (see table 9).

Generic specialty drugs. Of the 109 generic drugs sold in specialty  pharmacies, none was in the group of the 200 highest utilization  generic drugs, two were in the group of the 200 highest expenditure  generic drugs, and all 109 were in the group of the 200 highest  expenditure per utilization generic drugs. The gross Part D price for  the highest expenditure per utilization drugs sold in specialty  pharmacies was 74 percent of the manufacturer list price, and these  drugs received no additional rebates and other price concessions.

There was variation in generic drug pricing across the eight therapeutic  classes for generic drugs sold in retail pharmacies. Median gross Part D  prices for generic retail drugs ranged from 14 percent of manufacturer list  prices for cardiovascular agents to 56 percent of manufacturer list prices  for dermatological agents (see table 10). However, there was little  difference between in median gross and net Part D prices as a  percentage of manufacturer list price for generic retail drugs in any  therapeutic class, with the percentage difference ranging from 0 percent  to 2 percent.

There was little variation in median gross and net prices across the  therapeutic classes for generic drugs sold in specialty pharmacies. The  range in median gross prices as a percentage of manufacturer list prices  was 73 to 75 percent (see table 11). There was little difference between  median gross and Part D net prices as a percentage of manufacturer list  price, with the percentage difference between median gross and net  prices 1 percent or less for all classes.

Appendix VI: Studies and Stakeholders’ Views on Effects of Utilization Management Services

This appendix contains additional details on our review of 52 peer- reviewed studies on the effects of utilization management services on (1)  financial savings, (2) beneficiary health indicators, and (3) beneficiary  medication adherence and access, as well as stakeholders’ views on  these effects.

Effect of Utilization Management Services on Financial Savings

Of the 36 studies that examined the effect of utilization management  services on financial savings, 18 examined medication therapy  management programs and eight examined generic substitution. The  two groups of studies found the following:

Medication therapy management programs or comprehensive  medical reviews. Thirteen of the 18 studies that examined the  relationship between a medication therapy management program or  comprehensive medical review and financial savings found an  increase in savings. For example, one study found that a medication  therapy management program conducted by telephone decreased  beneficiary drug costs by $682 per beneficiary for participants,  compared to an increase of $119 for those not in the program.

Generic and therapeutic substitution and generic dispensing  rate. Of the 8 studies that examined the relationship between generic  and therapeutic substitution and financial savings, all found an  increase in savings. For example, a 2013 study examined the  potential financial savings to beneficiaries and Part D plan sponsors of  generic and therapeutic substitution of commonly prescribed drugs.  The study estimated that in 2007, generic and therapeutic  substitutions could have resulted in an average annual savings of  $127 and $389 per person, respectively.

Additionally, eight of these 36 studies examined the generic dispensing  rate, and all eight found that utilization management led to an increase in  the rate. The generic dispensing rate—the percent of prescriptions  dispensed with a generic drug instead of a brand-name drug—represents  a source of financial savings through a reduction in the use of brand- name drugs, which are generally more expensive than generics. For  example, a 2017 study analyzed 2012 Part D data to examine the impact  of prior authorization and step therapy on generic use among low-income  subsidy beneficiaries. This study found that those randomly assigned to  a plan using both prior authorization and step therapy had an increased  generic dispensing rate of 3 to 15 percentage points for all three classes  of drugs examined.

Effect of Utilization Management Services on Beneficiary Health Indicators

Twelve of the 20 studies that examined beneficiary health indicators  found that utilization management services were associated with  improved indicators, while the other eight found a mixed impact, no  impact, or a decline. Examples of studies that looked at the association  of utilization management services with beneficiary health indicators  include:

A study analyzing data from three Part D plan sponsors, which found  there was a nearly 50 percent reduction in the use of potentially  harmful drugs by beneficiaries 6 months after the implementation of a  retrospective drug utilization review program.

A randomized trial of medication therapy management for Part D  beneficiaries found a nearly 60 percent reduction in beneficiaries’ drug  therapy problems over time among two groups after the medication  therapy management intervention.

Effect of Utilization Management Services on Beneficiary Medication Adherence and Access

Fifteen studies examined the effect of utilization management services on  beneficiary medication adherence and access. Seven of the 10 studies  that examined the effect of either medication therapy management  programs or comprehensive medication reviews on beneficiaries’  medication adherence (taking medication as prescribed) found  improvement. For example, a 2016 study used data from Part D and the  U.S. Renal Data System to examine the relationship of medication  therapy management eligibility with immunosuppressant drug adherence  12 months after beneficiaries received a kidney transplant. The study  found that medication therapy management-eligible transplant recipients  were 14 percent more likely to have improved adherence than transplant  recipients who were not eligible. The other three studies that examined  medication therapy management programs or comprehensive medication  reviews found no statistically significant impact on adherence.

The effect of two other utilization management services—prior  authorization and step therapy—on beneficiary medication adherence  and access (the ability to obtain clinically indicated prescriptions) is  unclear, according to the studies we reviewed. The two studies that  examined the relationship of prior authorization and step therapy with  adherence both found a mixed impact. For example, one study examined  the impact of a health plan requiring either prior authorization or step  therapy on medication use among dual-eligible nursing home residents.  The study found that some residents whose new plan required prior  authorization or step therapy for their current medication were more likely  to have gaps in medication use than those without for two of six classes  of drugs in 2006, but no gaps for any of the classes for in 2007 and  2008.

The two studies that examined the relationship of prior authorization and  step therapy with access found an increase in medication access  problems, but they did not focus exclusively on the Medicare population.  For example, one study used 2006 data from a random sample of  psychiatrists surveyed about their patients to examine the relationship of  prior authorization and step therapy with medication access problems  among dual-eligible psychiatric patients. The study found that patients in  plans with prior authorization and step therapy requirements were 2.8 and  1.8 times more likely, respectively, to have experienced medication  access problems than patients in plans without these requirements. This  study examined the transition of dual-eligible beneficiaries from Medicaid  drug coverage to Medicare Part D when the program began in 2006, so  the results may not be generalizable to the entire Medicare population at  present.

Stakeholder Perspectives on the Effect of Utilization Management on Financial Savings, Beneficiary Health, Medication Adherence and Access to Clinically Appropriate Medications

Most representatives of pharmacy benefit managers (PBM), Part D plan  sponsors, and a manufacturer trade association we interviewed generally  agreed that utilization management services resulted in financial savings  by requiring the use of generic drugs. Representatives of 10 of 14 plan  sponsors and six of eight PBMs we interviewed stated that utilization  management services generally resulted in financial savings.  Representatives of one Part D plan sponsor stated that its utilization  management services resulted in annual savings of approximately 3  percent.

However, representatives of one Part D plan sponsor and one PBM noted  that not all utilization management services result in savings. For  example, they noted that improving care with medication therapy  management programs may increase drug costs through increased  utilization. Additionally, representatives of one Part D plan sponsor noted  the savings from utilization management services in commercial plans  may be greater than in Part D because the use of manufacturers’ copay  coupons are prohibited in federal health care programs, including Part  D. While the coupons reduce or eliminate beneficiaries’ out-of-pocket  co-payments for certain brand-name drugs, thereby encouraging their  use, the coupons do not affect the amount that the plans pay for drugs.  Therefore, to the extent that beneficiaries in their commercial plans use  coupons, Part D plan sponsors have a greater incentive to employ  utilization management services in these plans to reduce the use of more  expensive brand-name drugs.

Representatives of Part D plan sponsors and PBMs we interviewed  differed with manufacturers and, in some cases, with each other on the  effects of utilization management services on various non-financial  aspects of drug utilization:

Beneficiary health. Representatives from all three manufacturers we  interviewed stated that utilization management services negatively  affected beneficiary health by reducing their access to necessary  medications. In contrast, seven of the 11 Part D plan sponsors and  four of the five PBMs that discussed the effect of utilization  management services on beneficiary health stated that utilization  management services generally resulted in improved beneficiary  health. Representatives of certain PBMs and one Part D plan  sponsor provided us examples of the ways utilization management  services have improved their beneficiaries’ health, such as through  opioid quantity limits. One Part D plan sponsor noted that point-of-sale  utilization management services warn pharmacies of therapeutic  duplications, toxicities across multiple prescriptions, or interactions of  certain drugs with health conditions.

Medication access. Representatives from all three drug  manufacturers noted that utilization management services impose  limits on beneficiaries’ access to drugs, while seven of nine Part D  plan sponsors and three of the four PBMs who discussed this stated  utilization management services had no significant restrictions on  beneficiaries’ access to necessary medications. Representatives from  one plan sponsor noted there are appeals processes to ensure  beneficiaries’ access is not adversely impacted by utilization  management services.

Medication adherence. Representatives from all three manufacturers  told us that utilization management services limit beneficiaries’  adherence to their medications, such as by causing delays in therapy,  while seven of eight Part D plan sponsors and all four PBMs who  discussed this stated utilization management services had no adverse  impact on beneficiaries’ adherence to their medications.  Representatives from one plan sponsor and two PBMs stated that  utilization management services may have a positive impact on  adherence, such as by lowering copays through generic substitution.

Medicare protected classes and utilization management.

Representatives from Part D plan sponsors, PBMs, and  manufacturers differed in their views on the effect of Part D utilization  management services restrictions on protected class drugs on  beneficiary health. Representatives of two PBMs told us the effect  was positive, as beneficiaries who use these drugs do not experience  disruptions in therapy. Representatives of two other PBMs said there  was no effect, and one said there was a negative effect—as plan  sponsors were required to cover certain less effective drugs.  Representatives of one PBM said that, for example, patients in  commercial health plans do not have any problems accessing  protected class drugs that are subject to utilization management.  These representatives noted that the Centers for Medicare &  Medicaid Services provides for adequate access. However, one  manufacturer told us that utilization management services for HIV  drugs are rightly restricted in Part D, as these services may cause  disruptions in therapy, which can lead to drug resistance and poorer  health outcomes.

Representatives of five Part D plan sponsors said Medicare’s restrictions  on the use of utilization management services for protected class drugs  have had a negative impact on beneficiary health because, for example,  they limit plans’ ability to ensure that a prescribed drug is appropriate,  such as ensuring that a cancer drug is appropriate for a beneficiary’s  weight. Another plan sponsor representative told us the restrictions may  have a positive impact by reducing increases in medical costs, while  another plan sponsor said the restrictions have had no impact.

Appendix VII: Bibliography of Peer Reviewed Studies Used in GAO’s Literature Review

Abbass, I. M., E. O. Caplan, D. B. Ng, R. Kristy, C. R. Schermer, P. Bradt,  J. M. Collins, W. Man, M. Chan, and B. T. Suehs. “Impact of Overactive  Bladder Step Therapy Policies on Medication Utilization and Expenditures  among Treated Medicare Members.” Journal of Managed Care &  Specialty Pharmacy, vol. 23, no. 1 (2017): 27-37.

Agarwal, A., R. A. Freedman, F. Goicuria, C. Rhinehart, K. Murphy, E.  Kelly, E. Mullaney, M. St. Amand, P. Nguyen, and N. U. Lin. “Prior  Authorization for Medications in a Breast Oncology Practice: Navigation  of a Complex Process.” Journal of Oncology Practice, vol. 13, no. 4  (2017): e273-e282.

Almodovar, A. S., D. R. Axon, A. M. Coleman, T. Warholak, and M. C.  Nahata. “The Effect of Plan Type and Comprehensive Medication  Reviews on High-Risk Medication Use.” Journal of Managed Care &  Specialty Pharmacy, vol. 24, no. 5 (2018): 416-422.

Alston, G., and C. Hanrahan. “Can a Pharmacist Reduce Annual Costs  for Medicare Part D Enrollees?” The Consultant Pharmacist, vol. 26, no. 3  (2011): 182-189.

Ben-Joseph, R., C.C. Chen, A. P. De, R.L. Wade, and D. Shah.  “Consequences of Patient Access Restrictions to Branded Oxycodone  Hydrochloride Extended-Release Tablets on Healthcare Utilization and  Costs in US Health Plans.” Journal of Medical Economics, vol. 17, no. 10  (2014): 708-718.

Bergeson, J. G., K. Worley, A. Louder, M. Ward, and J. Graham.  “Retrospective Database Analysis of the Impact of Prior Authorization for  Type 2 Diabetes Medications on Health Care Costs in a Medicare  Advantage Prescription Drug Plan Population.” Journal of Managed Care  Pharmacy, vol. 19, no. 5 (2013): 374-384.

Bloudek, L. M., D. Makenbaeva, and M. Eaddy. “Anticipated Impact of  Generic Imatinib Market Entry on the Costs of Tyrosine Kinase Inhibitors.”  American Health & Drug Benefits, vol. 8, no. 9 (2015): 472-480.

Branham, A., J. Moose, and S. Ferrari. “Retrospective Analysis of  Medication Adherence and Cost Following Medication Therapy  Management.” Innovation in Pharmacy, vol. 1, no. 1 (2010): 1-8.

Branham, A. R., A. J. Katz, J. S. Moose, S. P. Ferreri, J. F. Farley, and M.  W. Marciniak. “Retrospective Analysis of Estimated Cost Avoidance  Following Pharmacist-Provided Medication Therapy Management  Services.” Journal of Pharmacy Practice, vol. 26, no. 4 (2013): 420-427.

Buhl, A., J. Augustine, A. M. Taylor, R. Martin, and T. L. Warholak.  “Positive Medication Changes Resulting from Comprehensive and  Noncomprehensive Medication Reviews in a Medicare Part D  Population.” Journal of Managed Care & Specialty Pharmacy, vol. 23, no.  3 (2017): 388-394.

Caffiero, N., T. Delate, M. D. Ehizuelen, and K. Vogel. “Effectiveness of a  Clinical Pharmacist Medication Therapy Management Program in  Discontinuation of Drugs to Avoid in the Elderly.” Journal of Managed  Care & Specialty Pharmacy, vol. 23, no. 5 (2017): 525-531.

Caplan, E. O., M. C. Guy, J. Chang, and K. Boesen. “Telephone-Based  Cardiovascular Medication Therapy Management in Medicare Part D  Enrollees with Diabetes.” The American Journal of Pharmacy Benefits,  vol. 9, no. 2 (2017): 47-54.

Chinthammit, C., E. P. Armstrong, K. Boesen, R. Martin, A. M. Taylor,  and T. Warholak. “Cost-Effectiveness of Comprehensive Medication  Reviews Versus Noncomprehensive Medication Review Interventions and  Subsequent Successful Medication Changes in a Medicare Part D  Population.” Journal of Managed Care & Specialty Pharmacy, vol. 21, no.  5 (2015): 381-389.

Chisholm-Burns, M. A., C. A. Spivey, E. A. Tolley, and E. K. Kaplan.  “Medication Therapy Management and Adherence among US Renal  Transplant Recipients.” Patient Preference and Adherence, vol.10 (2016):  703-709.

Corsi, K., V. Lemay, K. K. Orr, and L. Cohen. “Pharmacist Medication  Therapy Management in Home Health Care: Investigation of a  Sustainable Practice Model.” Journal of the American Pharmacists  Association, vol. 58, no. 4S (2018): S64-S68.

Dai, R. and J. Robst. “The Relationship between Plan Characteristics and  Medicare Prescription Drug Plan Bids.” Applied Economics Letters, vol.  19, no. 1 (2012): 99-104.

De Lott, L. B., J. F. Burke, K. A. Kerber, L. E. Skolarus, and B. C.  Callaghan. “Medicare Part D Payments for Neurologist-Prescribed  Drugs.” Neurology, vol. 86, no. 16 (2016): 1491-1498.

Dodson, S. E., J. F. Ruisinger, P. A. Howard, S. E. Hare, and B. J.  Barnes. “Community Pharmacy-Based Medication Therapy Management  Services: Financial Impact for Patients.” Pharmacy Practice, vol. 10, no. 3  (2012): 119-124.

Duru, O. K., S. L. Ettner, N. Turk, C. M. Mangione, A. F. Brown, J. Fu, L.  Simien, and C.W. Tseng. “Potential Savings Associated with Drug  Substitution in Medicare Part D: The Translating Research Into Action for  Diabetes (TRIAD) Study.” Journal of General Internal Medicine, vol. 29,  no. 1 (2014): 230-236.

Egilman, A. C., J. D. Wallach, J. S. Ross, and S. S. Dhruva. “Medicare  Spending and Potential Savings on Brand-Name Drugs with Available  Generic Substitutes Excluded by 2 Large Pharmacy Benefit Managers,  2012 through 2015.” JAMA Internal Medicine, vol. 178, no. 4 (2018): 567- 569.

Fox, D., L. D. Ried, G. E. Klein, W. Myers, and K. Foli. “A Medication  Therapy Management Program’s Impact on Low-Density Lipoprotein  Cholesterol Goal Attainment in Medicare Part D Patients with Diabetes.”  Journal of the American Pharmacists Association, vol. 49, no. 2 (2009):  192-199.

Gellad, W. F., J. M. Donohue, X. Zhao, M. K. Mor, C. T. Thorpe, J. Smith,  C. B. Good, M. J. Fine, and N. E. Morden. “Brand-Name Prescription  Drug Use among Veterans Affairs and Medicare Part D Patients with  Diabetes: A National Cohort Comparison.” Annals of Internal Medicine,  vol. 159, no. 2 (2013): 105-114.

Gernant, S. A., M. E. Snyder, H. Jaynes, J. M. Sutherland, and A. J.  Zillich. “The Effectiveness of Pharmacist-Provided Telephonic Medication  Therapy Management on Emergency Department Utilization in Home  Health Patients.” Journal of Pharmacy Technology, vol. 32, no. 5 (2016):  179-184.

Gold, J. A., B. French, and L. C. Vermeulen. “Reduction of Use of  Potentially Inappropriate Medications in the Elderly.” Wisconsin Medical  Journal, vol. 107, no. 4 (2008): 213-214.

Hoadley, J. F., K. Merrell, E. Hargrave, and L. Summer. “In Medicare Part  D Plans, Low or Zero Copays and Other Features to Encourage the Use  of Generic Statins Work, Could Save Billions.” Health Affairs, vol. 31, no.  10 (2012): 2266-75.

Hui, R. L., B. D. Yamada, M. M. Spence, E. W. Jeong, and J. Chan.  “Impact of a Medicare MTM Program: Evaluating Clinical and Economic  Outcomes.” The American Journal of Managed Care, vol. 20, no. 2  (2014): e43-e51.

Huskamp, H. A., D. G. Stevenson, A. J. O’Malley, S. B. Dusetzina, S. L.  Mitchell, B. J. Zarowitz, M. E. Chernew, and J. P. Newhouse. “Medicare  Part D Plan Generosity and Medication Use among Dual-Eligible Nursing  Home Residents.” Medical Care, vol. 51, no. 10 (2013): 894-900.

Moczygemba, L. R., J. C. Barner, J. C. Brannier, and E. R. Gabrillo.  “Outcomes of a Medicare Part D Telephone Medication Therapy  Management Program.” Journal of the American Pharmacists  Association, vol. 52, no. 6 (2012): e144-e152.

Moczygemba, L. R., J. C. Barner, K. A. Lawson, C. M. Brown, E. R.  Gabrillo, P. Godley, and M. Johnsrud. “Impact of Telephone Medication  Therapy Management on Medication and Health-Related Problems,  Medication Adherence, and Medicare Part D Drug Costs: A 6-Month  Follow Up.” The American Journal of Geriatric Pharmacotherapy, vol. 9,  no. 5 (2011): 328-338.

Moore, J. M., D. Shartle, L. Faudskar, O.S. Matlin, and T.A. Brennan.  Impact of a Patient-Centered Pharmacy Program and Intervention in a  High-Risk Group. Journal of Managed Care Pharmacy, vol. 19, no. 3  (2013): 228-236.

Newman-Casey, P. A., M. A. Woodward, L. M. Niziol, P. P. Lee, and L. B.  De Lott. “Brand Medications and Medicare Part D: How Eye Care  Providers’ Prescribing Patterns Influence Costs.” Ophthalmology, vol.  125, no. 3 (2018): 332-339.

Null, K. D., K. Moll, A. Sadosky, M. K. Pasquale, J. C. Cappelleri, and B.  Parsons. “Trends Associated with Implementing and Lifting a Pregabalin  Step Therapy Policy.” American Journal of Pharmacy Benefits, vol. 8, no.  2 (2016): e17-e24.

Olvey, E. L., M. C. Guy, J. Chang, and G. H. Skrepnek. “Cost- Effectiveness of Medication Therapy Management in Part D Diabetic  Enrollees.” American Journal of Pharmacy Benefits, vol. 6, no. 5 (2014):  e147-e156.

Pai, A.B., A. Boyd, J. Depczynski, I.M. Chavez, N. Khan, and H. Manley.  Reduced Drug Use and Hospitalization Rates in Patients Undergoing  Hemodialysis Who Received Pharmaceutical Care: A 2-Year,  Randomized, Controlled Study. Pharmacotherapy, vol. 29, no. 12 (2009):  1433-1440.

Patel, R. A., M. P. Walberg, E. Tong, F. Tan, A. E. Rummel, J. A. Woelfel,  S. M. Carr-Lopez, and S. M. Galal. “Cost Variability of Suggested Generic  Treatment Alternatives under the Medicare Part D Benefit.” Journal of  Managed Care Pharmacy, vol. 20, no. 3 (2014): 283-290.

Pindolia, V. K., L. Stebelsky, T. M. Romain, L. Luoma, S. N. Nowak, and  F. Gillanders. “Mitigation of Medication Mishaps via Medication Therapy  Management.” The Annals of Pharmacotherapy, vol. 43, no. 4 (2009):  611-620.

Shen, X., B. C. Stuart, C. A. Powers, S. E. Tom, L. S. Magder, and E. M.  Perfetto. “Impact of Formulary Restrictions on Medication Use and  Costs.” The American Journal of Managed Care, vol. 23, no. 8 (2017):  e265-e274.

Starner, C. I., S. A. Norman, R. G. Reynolds, and P. P. Gleason. “Effect  of a Retrospective Drug Utilization Review on Potentially Inappropriate  Prescribing in the Elderly.” The American Journal of Geriatric  Pharmacotherapy, vol. 7, no. 1 (2009): 11-19.

Stebbins, M.R., D.J. Kaufman, and H.L. Lipton. “The PRICE Clinic for  Low-Income Elderly: A Managed Care Model for Implementing  Pharmacist-Directed Services.” Journal of Managed Care Pharmacy, vol.  11, no. 4 (2005): 333–341.

Steele, K. M., J. F. Ruisinger, J. Bates, E. S. Prohaska, B. L. Melton, and  S. Hipp. “Home-Based Comprehensive Medication Reviews:  Pharmacist’s Impact on Drug Therapy Problems in Geriatric Patients.”  The Consultant Pharmacist, vol. 31, no. 10 (2016): 598-605.

Stockl, K. M., D. Tjioe, S. Gong, J. Stroup, A. S. M. Harada, and H. C.  Lew. “Effect of an Intervention to Increase Statin Use in Medicare  Members Who Qualified for a Medication Therapy Management  Program.” Journal of Managed Care Pharmacy, vol. 14, no. 6 (2008):  532-540.

Suehs, B. T., A. Louder, M. Udall, J. C. Cappelleri, A. V. Joshi, and N. C.  Patel. 2014. “Impact of a Pregabalin Step Therapy Policy among  Medicare Advantage Beneficiaries.” Pain Practice, vol. 14 (5): 419-426.

Tang, Y., W. F. Gellad, A. Men, and J. M. Donohue. “Impact of Medicare  Part D Plan Features on Use of Generic Drugs.” Medical Care, vol. 52,  no. 6 (2014): 541-548.

Thatcher, E. E., E. M. Vanwert, and S. R. Erickson. “Potential Impact of  Pharmacist Interventions to Reduce Cost for Medicare Part D  Beneficiaries.” Journal of Pharmacy Practice, vol. 26, no. 3 (2013): 248- 252.

Touchette, D. R., A. L. Masica, R. J. Dolor, G. T. Schumock, Y. K. Choi,  Y. Kim, and S. R. Smith. “Safety-Focused Medication Therapy  Management: A Randomized Controlled Trial.” Journal of the American  Pharmacists Association, vol. 52, no. 5 (2012): 603-612.

Ward, M. A., and Y. Xu. “Pharmacist-Provided Telephonic Medication  Therapy Management in an MAPD Plan.” The American Journal of  Managed Care, vol. 17, no. 10 (2011): e399-e409.

Welch, E. K., T. Delate, E. A. Chester, and T. Stubbings. “Assessment of  the Impact of Medication Therapy Management Delivered to Home-Based  Medicare Beneficiaries.” The Annals of Pharmacotherapy, vol. 43, no. 4  (2009): 603-610.

West, J. C., J. E. Wilk, I. L. Muszynski, D. S. Rae, M. Rubio-Stipec, C. L.  Alter, W. E. Narrow, and D. A. Regier. “Medication Access and Continuity:  The Experiences of Dual-Eligible Psychiatric Patients during the First 4  Months of the Medicare Prescription Drug Benefit.” The American Journal  of Psychiatry, vol. 164, no. 5 (2007): 789-796.

West, J. C., J. E. Wilk, D. S. Rae, I. L. Muszynski, M. Rubio-Stipec, C. L.  Alter, K. E. Sanders, S. Crystal, and D. A. Regier. “First-Year Medicare  Part D Prescription Drug Benefits: Medication Access and Continuity  among Dual Eligible Psychiatric Patients.” The Journal of Clinical  Psychiatry, vol. 71, no. 4 (2010): 400-410.

Winston, S., and Y.S. Lin. “Impact on Drug Cost and Use of Medicare  Part D of Medication Therapy Management Services Delivered in 2007.”  Journal of the American Pharmacists Association, vol. 49, no. 6 (2009):  813-820.

Woelfel, J. A., S. M. Carr-Lopez, M. D. Santos, A. Bui, R. A. Patel, M. P.  Walberg, and S. M. Galal. “Assessing Medicare Beneficiaries’  Willingness-to-Pay for Medication Therapy Management Services.” The  Consultant Pharmacist, vol. 29, no. 2 (2014): 104-109.

Zillich, A. J., M. E. Snyder, C. K. Frail, J. L. Lewis, D. Deshotels, P.  Dunham, H. A. Jaynes, and J. M. Sutherland. “A Randomized, Controlled  Pragmatic Trial of Telephonic Medication Therapy Management to  Reduce Hospitalization in Home Health Patients.” Health Services  Research, vol. 49, no. 5 (2014): 1537-1554.

Appendix VIII: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Robert Copeland, Assistant  Director; William A. Crafton, Analyst-in-Charge; Britt Carlson, Kaitlin  Dunn, Andrew Emmons, Michael Rose, and Dan Ries made key  contributions to this report. Also contributing were George Bogart, Yesook  Merrill, Laurie Pachter, and Vikki Porter.

The government contracts with private companies, known as plan sponsors, to provide Medicare Part D prescription drug coverage. Pharmacy benefit managers work with plan sponsors to negotiate drug price rebates for Medicare, among other things. In 2016, these rebates offset Part D spending by 20%, from $145 billion to $116 billion.

Pharmacy benefit managers' compensation for working with plan sponsors primarily consisted of fees from plan sponsors, rather than being allowed to keep a portion of the rebates they negotiated

Plan sponsors used these managers to provide about three-quarters of Part D prescription drug services