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OIG: Costly Drugs Driving Increased Medicare Part D Spending

Payments by the federal government for Medicare prescription drugs have more than tripled since 2010, according to a new report by the Department of Health and Human Services Office of Inspector General (OIG).

OIG conducted an analysis of Medicare Part D payments, focused specifically on catastrophic coverage for Part D drugs. Catastrophic coverage for Part D drugs begins once a beneficiary has spent a certain amount out of pocket ($4,950 in 2017). When a beneficiary reaches the catastrophic coverage threshold, Medicare covers 80 percent of the drug costs and the Medicare Part D plan pays 15 percent of the costs. Beneficiaries are required to pay the remaining 5 percent.

In the report, OIG found that the federal portion of spending on catastrophic coverage reached $33.2 billion in 2015, compared with $10.8 billion in 2010. The rapid increase in federal spending was driven primarily by rising drug prices — one third of the money the government spent on catastrophic coverage was for 10 high-priced drugs. Six of the 10 highest-priced drugs had rapid price increases since 2010 — for example, the average monthly price for one cancer drug increased by $4,900 from 2010 to 2015. Rising drug prices also translate to a greater burden on beneficiaries in the form of higher cost-sharing: the average beneficiary paid nearly 50 percent more in 2015 for Part D drugs than in 2010.

OIG recommended that the Centers for Medicare & Medicaid Services evaluate policy options that will preserve access to drugs and limit beneficiary out-of-pocket costs. Some examples of policy options cited in the report include allowing the government to negotiate drug prices, value-based purchasing arrangements, and more transparency on drug pricing.

Contact Director of Policy Erin O’Malley at or 202.585.0127 with questions.


About the Author

Shahid Zaman is a senior policy analyst at America's Essential Hospitals.

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