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Let The Buyer Beware: Medicare Part D

Stanley Feld M.D.,FACP,MACE

The mystery of buying drugs under Medicare Part D increases each year. The plans offered become more costly and complicated.

Medicare did not cover outpatient prescription drugs until January 1, 2006, when it implemented the Medicare Part D prescription drug benefit.

Congress authorized Medicare Part D with the heading the “Medicare Prescription Drug, Improvement, and Modernization Act of 2003.”

Private insurance companies administer Medicare Part D plans for the government. The government is not allowed to negotiate drug prices with the pharmaceutical companies.

The VA healthcare system negotiates prices with the pharmaceutical companies. The prices are at least 60% lower than the Part D prices.

Multiple plans are offered with increasing premium prices and deductibles each year.

The increases in deductibles are significant. Below are the increases between 2016 and 2017. Most seniors do not pay attention to the increase in premiums, deductibles or coverage because they automatically enroll each year.

They become aware of the changes changes when they go to pay for their medication

Initial Deductible:
will be increased by $40 to $400 in 2017.

Initial Coverage Limit:
will increase from $3,310 in 2016 to $3,700 in 2017.

Out-of-Pocket Threshold:
will increase from $4,850 in 2016 to $4,950 in 2017.

Coverage Gap (donut hole):
begins once you reach your Medicare Part D plan’s initial coverage limit ($3,700 in 2017) and ends when you spend a total of $4,950 in 2017.

In 2017, Part D enrollees will receive a 60% discount on the total retail cost of their brand-name drugs purchased while in the donut hole.

Generally, not all drugs are covered at the same out of pocket cost to the beneficiary. This gives participants incentives to choose certain drugs over others. This is most often implemented—as is the case for drug coverage for those not on Medicare—through incentives to use generic drugs over brand-name drugs.

The incentive is also often implemented via a system of tiered formularies in which some brand-name drugs are less expensive than others and not subject to step therapy.

Generic drugs are less expensive than brand named drugs. Patients learned this quickly. They encouraged their physicians to provide them with a prescription for generic drugs.

When patients buy drugs with Medicare Part D the deductible price is the patients’ cash outlay. However, the Medicare Part D plan charges patients the total retail price of the drug against their donut.

For example if a 90 day supply of a generic drug is $10 and the retail price is $60 dollars, the $60 is charged against the patient’s donut to be added to future purchases.

If patients paid $10 cash already shouldn’t only $50 of the $60 be charged against the donut?

Many generics can be purchased for a cash price or using a discount drug card coupon for $10 without using Medicare Part D and incurring the $60 retail charge against a donut.

Many generics can be purchased for less using a discount drug card coupon than the cash price a senior on Medicare Part D has to pay using Medicare Part D insurance.

It is not uncommon for senior patients to reach their donut in less than a year. At that time those senior patients have to pay 100% (60% in 2017) of the retail price for a drug until they reach $4,950.

The amount is an additional cash price of $1,250.

It was difficult to figure this out before discount drug cards became available.

How do these discount drugs card work and the discount drug card companies make money?

The Middle Men are:

“1.    Cardholder – the consumer

  1. Pharmacy – the retail outlet in which the purchase is made
  2. Pharmaceutical Company – the manufacturer of the medication
  3. Adjudicator – the organization that negotiates the discounts with the drug makers
  4. Card Marketer – the organization whose brand is on the card
  5. Card Marketer Affiliate – an organization that assists the Card Marketer in distribution

 Each time a card is used there is a transaction fee applied to the purchase price. 

 That fee is split 3 or 4 ways (though perhaps not evenly) between the Pharmacy, the Adjudicator, the Card Marketer and their Affiliate.

This transaction fee comes at the Cardholder’s expense.

However, usually the negotiated discount cost of the medication far exceeds the transaction fee so the Cardholder still wins. 

For example, the retail price for a medication is $100. The prescription discount card has negotiated a 40% discount, so the cost would be $60 but there is a $10 transaction fee. So the Cardholder pays $70 instead of $100. Of the $10 transaction fee, the Pharmacy might take $2, the Adjudicator $2 and the Card Marketer $6.

The Card Marketer might pay out $1 to their marketing


Many Medicare Part D patients have figured out how to optimize their drug cost through the use of the discount drug cards.

None of these government policy manipulations are to senior recipients of Medicare Part D advantage. They all benefit the middlemen.

A simple solution is to change the Medicare Part D law so the government can negotiate the cost of drugs just as all the middlemen in the Discounted Drug Card industry are negotiating the price of drugs to the advantage of seniors.

Sometimes the discount cards yield different discounts in different pharmacies in the same zip code.

Sometimes the pharmaceutical companies figure out how to combine two medications that are just as effective when taken separately to increase the cash price to senior patients.

These companies do it with FDA approval.

I became aware of the vast price differences recently with two commonly used drugs Dutasterile (Brand name Avodart) and Tamusulosin (Flow Max). Both drugs have been on the market long enough to be sold as generic drugs.

Using the Good RX discount card these are the variation in prices for the combination drug and the drugs sold separately in one zip code.

Dutasterilde +

Tamsulosin 90

Dutasterile 90 Tamusulosin 90
Walgreens $183.00 $183.08 $113.93
Kroger $316.98 $45.61 $30.62
CVS $388.69 $84.63 $58.62
Tom Thumb $391.85 49.85 $31.85
Albertson $391.60 $52.60 $31.85
Walmart $475.10 $398.71 $55.23
Target $388.69 $388.71 $136.41

Table 1

None of the pharmacies receive an appropriate discount for the combination of Dutasterile plus Tamulosin. Only Kroger’s negotiator received an appropriate discount for the two drugs sold separately. The total price is $76.23 for 90 pills vs. $316.98 for the combination.

However, seniors have run into a problem in shopping for the best price in a neighborhood.

The government provides a bonus to physician practices that have meaningful use electronic medical records.

One criterion for a meaningful use electronic medical record is the electronically ordering prescriptions for patients.

If a patient usually used the Wal-Mart Pharmacy that telephone number would be in the record. The physician’s prescription would automatically be sent to the Wal-Mart Pharmacy. If the physician wrote for the combination for it would cost $475.10. If the physician wrote the prescription for each medication separately in would cost the patient $453.94 as opposed to cost him $76.23 at Kroger’s.

Compounding the complexity of the electric medical records unintended consequence the pharmacist would automatically fill the combination prescription using that senior’s Medicare Part D insurance. It would be much cheaper than the cash price.

The senior would pay only $146.50 for the combination but his donut would be charged the full retail price of $475.10.

The physician’s office should be aware of the difference in price between the generic combination and the generic drugs sold separately. However, that is not the physicians job.

He should be able to give the patient a paper prescription for both the combination and separate medication so the patient would be able to shop for the best price in his zip code if he was so inclined.

Clearly Medicare Part D is a mess and needs straightening out.

The discount drug cards are not the answer on top of the rising Medicare Part D premiums.

Many retired seniors are living month to month on a pension. The Medicare Part D premiums are paid with after tax dollars not pre-tax dollars.

Many seniors simply cannot afford to pay for their medication. If they do not take their medication they will develop complications of their disease.

Medicare Part A and B will cost the government more and become more unsustainable.

A few simple fixes can solve the problems in Medicare Part D that policy makers and congressmen do not seem to be aware of.

Patients must be responsible for their medical care and their healthcare dollars.

It would be nice if the government would help a little with fixes in information and policies that work for senior patients.

In the meantime it is imperative to “Let the Patient Beware.”

The opinions expressed in the blog “Repairing The Healthcare System” are mine and mine alone.

All Rights Reserved © 2006 – 2017 “Repairing The Healthcare System” Stanley Feld M.D.,FACP,MACE

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