How protected classes in Medicare Part D influence U.S. drug sales, utilization, and price

Abstract

When the Medicare Part D prescription drug benefit was implemented in 2006, six drug classes were designated “protected classes.” Because responsibility for obtaining favorable drug prices depends on private insurers' abilities to negotiate with pharmaceutical manufacturers using the threat of formulary exclusion, the protected class designation could undermine the insurers' ability to control spending and utilization of drugs in these six classes. I estimate the effect of the protected class policy on U.S. national drug sales, utilization, and price using 2001–2010 IMS Health National Sales Perspectives data and Verispan Vector One: National data and controlling for drug and year fixed effects. I find that protected status beginning in 2006 led to $112–121 million per drug per year higher U.S. sales for drugs in protected classes relative to unprotected drugs. Greater sales were driven by the antidepressant, antipsychotic, anticonvulsant, and antineoplastic classes. Subsequent analyses on a subset of drugs reveal that increases in both price and quantity are responsible for the growth of sales in protected class drugs. These results are important for informing the recent and ongoing deliberation by the Medicare program over whether to remove several classes from protection.

Effects of Medicare Part D coverage gap closure on utilization of branded and generic drugs

“…Another factor that may affect the differential policy effects across therapeutic classes is the inclusion of protected classes in Medicare Part D. For these classes, plans are required to cover all or substantially all drugs on the formulary, and previous research has suggested that this gives market power to manufacturers and leads to high prices (Duggan & Scott Morton, 2010 ; Hwang et al., 2019 ; Yarbrough, 2020 ). Since psychotherapeutic drugs and neurologic drugs both include protected classes, the theoretical effect of the policy may be muted.…”

Why Does the Inflation Reduction Act Exclude Expensive Cancer Treatments in Price Negotiations?

“…Although patient advocates argue that protected class status ensures access to necessary treatments for complex and evolving cancers, 19 it also limits negotiations between PDPs and drug manufacturers. 20,21 The price negotiation provisions in the IRA aim to offer protections to ensure Medicare beneficiaries with cancer can access necessary treatments while also enhancing negotiating power in Medicare Parts B and D to reduce the financial burden on Medicare recipients and expand the number who can benefit from treatment.…”

Insurance Coverage Mandates and the Adoption of Digital Breast Tomosynthesis

“…However, benefit mandates can have complex effects and have been criticized for contributing to higher insurance premiums (and thereby potentially decreasing insurance rates), reducing the flexibility of plan design, and increasing the price of the specific mandated services by reducing negotiating power. 14 , 15 …”

“…However, benefit mandates can have complex effects and have been criticized for contributing to higher insurance premiums (and thereby potentially decreasing insurance rates), reducing the flexibility of plan design, and increasing the price of the specific mandated services by reducing negotiating power. 14,15 The goal of this study was to evaluate the association between state DBT coverage mandates and DBT use, prices, and out-of-pocket payments. We used longitudinal data from a large administrative database to characterize state-level changes in DBT use, overall price, and out-ofpocket payments among privately insured women in the US after passage of a coverage mandate.…”

“…Insurance benefit mandates such as these have been widely used in other contexts as a policy tool to protect consumers from high out-of-pocket costs and to facilitate access to important health services. However, benefit mandates can have complex effects and have been criticized for contributing to higher insurance premiums (and thereby potentially decreasing insurance rates), reducing the flexibility of plan design, and increasing the price of the specific mandated services by reducing negotiating power …”