9 Drugs That Cost Medicare a Fortune

By Markets Fool.com


Image source: Pixabay.

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Put bluntly, Medicare is in trouble.

The program -- designed to protect our nation's senior citizens by covering some of the eligible costs tied to their hospitalization and outpatient care -- is on an unsustainable course.

As we examined just a few weeks prior, the Hospital Insurance Trust Fund stands just an estimated 14 years away from burning through its excess cash reserves. The Trustees' report that suggested 2030 would be the year Medicare's HI Trust exhausts its cash reserves has also implied that a higher cost-estimate model could drain its cash reserves even faster. Once the cash reserves of the HI Trust are exhausted, hospitals would only be reimbursed at a rate commensurate to what the program brings in via payroll tax revenue.

Now here's the problem: The majority of Medicare beneficiaries (seniors aged 65 and up) are receiving lifetime benefits that go far above and beyond what they contributed into the system. The Urban Institute's data showed that the average male and female in 2010 are expected to pay $61,000 into the Medicare program over their lifetime. Yet, in terms of lifetime benefits, males are expected to receive $180,000 and females $207,000 (women have longer life expectancies than men). The idea of receiving well more than was paid into the program isn't sustainable.

Making matters worse, this problem is only going to get worse as life expectancies improve and seniors lean even more heavily on Medicare to bear their medical cost burden, and as baby boomers dive headlong into retirement.

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Medicare's prescription drug problem
But, there's another problem looming on the horizon for Medicare (just in case it didn't have enough): prescription drug costs, particularly for newer drugs.

I know what you're thinking, and you're mostly right: Medicare Part D (prescription drug plans offered through private insurers) covers the vast majority prescription drug costs. However, there are prescription drug costs that Medicare Part B (which is provided by the government) covers. These normally include injections given on an outpatient basis by a physician.


Image source: U.S. Government Accountability Office.

According to report issued by the U.S. Government Accountability Office in October 2015 on Medicare Part B, the program spent $20.9 billion on Part B drug expenditures in 2013. With the exception of 2011, this has been on a pretty steady incline in recent years.

However, the real culprits the GAO report identified for rising Medicare Part B expenses are new Part B prescription drugs (defined as drugs brought to market in 2007 or later). You'll note above that between 2007 and 2013, new prescription drug introductions, of which there were 83 in total, added $5.4 billion in costs to Part B. Even scarier, nearly half (47%) of these 83 drugs are for orphan indications (a disease with 200,000 or fewer cases in the U.S.), which often bear considerably higher price points.


Image source: U.S. Government Accountability Office.

As this GAO chart shows, almost two-thirds of Part B new drug treatments are for ophthalmologic or cancer-based diseases. Traditionally, these are not inexpensive indications.

Nine drugs wreaking havoc on Medicare's bottom line
What GAO's report on Medicare Part B really exposes is just how much a small handful of new prescription therapies can raise the program's costs. The report notes that 20 new drugs account for 92% of all new Part B drug expenditures in 2013, with nine drugs in particular accounting for more than three-quarters (76%) of new Part B drug costs. Here are those nine drugs, listed in order of total expenditures in 2013.

  1. Lucentis: $1.37 billion
  2. Eylea: $1.09 billion
  3. Prolia: $665 million
  4. Treanda: $332 million
  5. Lexiscan: $257 million
  6. Yervoy: $224 million
  7. Privigen: $184 million
  8. Provenge: $183 million
  9. Soliris: $150 million

Image source: Alexion Pharmaceuticals.

You'll note there are revolutionary drugs on this list with some exorbitant price tags. For example, Alexion Pharmaceuticals' (NASDAQ: ALXN) Soliris is the second most expensive drug in the world, with annual costs reaching over $400,000. Soliris treats two very rare genetic diseases, and since no cure exists, and there's essentially nothing in the way of competition, Alexion is free and clear to charge sky-high prices for its treatment. GAO's findings show that only 441 beneficiaries received Soliris in 2013, equating to a cost of $340,500 per beneficiary.

You'll also note the presence of Bristol-Myers Squibb's cancer immunotherapy Yervoy and Valeant Pharmaceuticals' prostate cancer immunotherapy Provenge among the most expensive new Part B drugs in 2013. Cancer immunotherapies work by supercharging your immune system to recognize and destroy cancer cells, but this new technology comes with a mighty cost. Bristol-Myers Squibb's Yervoy packs a wholesale punch of about $120,000 per year, while Valeant Pharmaceuticals' Provenge, which it scooped up as part of Dendreon's bankruptcy sale, ran $93,000 for a full course of treatment when it hit the market in 2010. GAO data shows Yervoy cost nearly $93,000 per beneficiary and Provenge expenditures topped $86,000 per Medicare beneficiary.

Also keep in mind that this data doesn't include high-priced and orphan drugs approved in 2014 or 2015.

This is a big concern
Rising Part B drug costs are a big concern for seniors, because without specific coverage designed to protect them, they could be on the line for 20% of their eligible Medicare expenses. As a reminder, original Medicare has no annual out-of-pocket limit, meaning $92,616 spent on a Yervoy prescription could leave seniors with a bill of greater than $18,000 to contend with.

There are really two ways this can be fought. Either government can go on the offensive and take on drug company pricing practices, which would more than likely be a long and drawn out affair where there may be no true winners, or seniors can educate themselves about additional coverage options that can help protect their nest egg.

Image source: Flickr user Joi Ito.

For instance, a Medicare Supplement plan, better known as Medigap, could help cover a lot of the costs associated with expensive Part B drugs. These are supplemental plans bought from private health insurers that help fill in some of the aforementioned cost gaps, as well as cover medical expenses when traveling outside the United States.

We've also been witnessing a lot of seniors purchasing Medicare Advantage plans (also known as Part C) -- and with good reason. Medicare Advantage plans, which are sold by private insurers, have clearly defined out-of-pocket limits ($6,700 in 2016) for what would be covered under Part A (hospital insurance) and Part B (medical/outpatient insurance) of original Medicare. This would mean that no Medicare Advantage plan would cost seniors more than $6,700 out-of-pocket for Part B drugs annually. If you're receiving cancer injections or a rare disease therapy, this could actually be a really smart money-saving move.

A quick word to the wise though: Medicare Advantage plans don't count premium payments toward your out of-pocket costs, and there is no out-of-pocket limit for the majority of prescription drugs covered by what would be Part D.

Long story short, seniors need to be aware of how drug costs can affect them, and they should be evaluating their options on an annual basis to ensure they've got the right coverage that suits their needs best.

The article 9 Drugs That Cost Medicare a Fortune originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of and recommends Valeant Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.