Medicare Spends 77% More on Brand-Name Drugs Even as Drug Use Declines

Benita Lee
Benita Lee, MPH, is on the Research Team at GoodRx.
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Medicare is spending more on brand-name drugs even as fewer of these drugs are being prescribed. Through Medicare Part D, the nation’s prescription drug benefit plan for Medicare beneficiaries, total brand-name medications cost 77% more in 2015 than they did just five years earlier, despite the number of these prescriptions actually dropping by almost 20%.

A report released earlier this week from the US Department of Health and Human Services shows that on a per-unit basis, Medicare costs for brand-name drugs in a recent five-year span rose six times faster than inflation. And both Medicare and Medicare patients paid big time.

From 2011 to 2015, Medicare Part D spending on brand-name drugs increased by three-quarters, from less than $60 billion to over $100 billion per year. The Inspector General’s report notes that these drugs were typically prescribed for conditions like diabetes, heart disease, and asthma. These are chronic conditions, which means patients on related medications feel the sticker shock of higher prices for a long time.

About 3,500 brand-name medications were subject to Medicare reimbursements from 2011 to 2015. Costs increased for nine out of 10 of these drugs. On average, the cost to Medicare for each prescription drug increased by about 30% or around $35. But cost increases surpassed 2,000% for some drugs — like thiola, a medication used to prevent kidney stones. Thiola is a high-ticket drug today, priced at about $5,200 for a month’s supply out of pocket.

Higher drug prices aren’t just affecting Medicare’s overall spending. Out-of-pocket costs have risen for Medicare patients too. Out-of-pocket costs for brand-name drugs increased by 40%. On average, brand-name drugs carried an out-of-pocket per-unit cost of $225 in 2015, but only cost $161 per unit in 2011.

According to the report, more and more Medicare beneficiaries are paying at least $2,000 per year for brand-name drugs. That number has nearly doubled  between 2011 and 2015. Ironically, just earlier this month, the US Federal Reserve published research showing that four in 10 American adults surveyed wouldn’t be able to pay for an unexpected expense of just $400.

Interestingly, Medicare has already been moving generic drugs into higher tier formularies where patients are responsible for more of the cost. A recent analysis from Avalere Health found that back in 2011, 71% of covered generic drugs were placed in Tier 1, where patients pay little to no cost. That percentage dropped to only 19% in 2015 as drugs were moved to higher tiers with higher co-pays.

Is this strategy for generic drugs a foreshadowing of what will happen with brand-name drugs through Medicare? We’ll have to wait and see. But this new report shows that drug prices are volatile and even basic medications are becoming more expensive, despite insurance coverage.

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