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J Oncol Pract. 2005 November; 1(4): 162–166.
PMCID: PMC2794570

Medicare's New Part D Prescription Drug Benefit: A Major Work in Progress

During May and June 2005, the Centers for Medicare & Medicaid Services (CMS) began mailing letters to beneficiaries about a new prescription drug benefit, called the Part D benefit, that will take effect on January 1, 2006, for those patients who join. CMS estimates that this new benefit will prove advantageous to more than 42 million Americans. The Part D benefit, says former ASCO president Joseph S. Bailes, MD, should prove to be “a real boon to Medicare beneficiaries who now have to pay out of pocket for prescription drugs, unless they have prescription drug coverage through secondary insurance. Today there is no prescription benefit for Medicare patients. With Part D in place, they will have a substantial portion of those drugs paid for.” According to Barbara Cebuhar, with the Office of External Affairs at CMS, “It can help the average senior cut their drug costs in half and provide special relief for people with few resources, who will have 95% or more of their drug costs covered.”

The Part D benefit is something of a complicated work in progress. Nonetheless, it is clear, says Bailes, that “this benefit is going to prove very important for oncologists because it will provide them with reassurance that their Medicare patients will have their drugs covered. It will make life much easier for oncology patients and therefore for oncology practices.

“It behooves patients to get the most complete prescription drug coverage that they can, but they are not obligated to do so,” he explains. “This Medicare program is voluntary. It's not designed to force people into programs that they don't want. Participation in Part D isn't necessarily something that every Medicare beneficiary will sign up for, but I think that the overwhelming majority of Medicare beneficiaries with cancer will sign up. Beneficiaries can keep any plan that they have which offers the same level of benefits as a Medicare prescription drug plan. For example, if they have a plan sponsored by General Motors, they can either keep it or choose a Medicare plan over the GM Plan.”

Decisions, Decisions

Terry Coleman, a partner in the Washington, DC, law firm of Ropes and Gray, adds that “if a person has equivalent coverage in some way, there is no penalty for not signing up for Part D coverage. Let's say you're over 65 and you're covered by a spouse's employment plan, so several years go by and you don't sign up. But then your spouse retires and you lose that coverage. There will be no penalty as long as you have had similar coverage the whole time through other channels.” Coleman serves as public policy counsel to ASCO.

Beneficiaries who opt to remain with an employer or union plan that covers as much or more than a Part D plan can keep that plan until such time as they choose to join a Part D program, without penalty. They may find though that once they have left the employer or union plan they cannot return to it.

CMS summarizes the incentives and penalties in this way: Beneficiaries who opt to remain with an employer or union plan that covers as much as or more than a Part D plan can keep that plan until such time as they choose to join a Part D program, without penalty. They may find, though, that once they have left the employer or union plan, they cannot return to it. If an employer or union drug plan covers less than a Part D plan, the beneficiary can opt to join a Part D plan for better coverage or stay with their current plan. However, if they join a Part D plan later, they will have to pay at least 1% more for every month they waited to enroll in that Part D plan after May 15, 2005. Furthermore, any beneficiary who does not sign up for a Part D program by May 15, 2006 (the day that open enrollment ends), may have to wait until November 15, 2006, to do so. At that time, they may pay higher premiums.

Meanwhile, says Bailes, “There is considerable confusion among seniors about this new benefit. They've been receiving information in the mail from the Medicare program about the benefit for months. Many of them don't understand the letter and they're uncertain about how to proceed.”

How Can Doctors Help?

All the key actors involved stress one major point. Doctors, burdened as they are with clinical and administrative duties, can best serve their patients by briefly discussing with them the potential importance of the new coverage and by steering them to good sources of information to help them make informed choices. No one expects doctors or their staffs to serve as clearinghouses for information about specific details of specific plans.

Experts agree that there remain “a lot of uncertainties about the Part D plans,” as Bailes puts it. This article will briefly describe those aspects of the benefit that are known as of September 2005. It will also discuss certain areas of less certainty, ones that will start to take firmer shape next year when the Part D benefit actually rolls out in January 2006.

An Important Shift in Oncology

The reason that the Part D benefit will matter greatly in oncology is this: The existing Medicare drug benefit, called the Part B benefit, covers only those drugs that are administered in physicians' offices. Part B excludes oral and other medications that patients obtain at their drug store, pharmacy, or mail-in pharmacy for use at home. The trend toward more and more oncology drugs falling into the self-administered, oral category is accelerating, says Bailes. “Lots of drugs in the pipeline now will be pills or combinations of pills and intravenous therapy. Some of the oral drugs will grow out of IV drugs; others are entirely new,” he explains.

Patients are already benefiting from widely used self-administered drugs. These include therapies such as gefitinib (Iressa, AstraZeneca) for non–small-cell lung cancer; imatinib mesylate (Gleevec, Novartis Pharmaceuticals Corp.) for chronic leukemia; erlotinib (Tarceva, Genentech, Inc.) for advanced lung cancer; tamoxifen (Nolvadex, AstraZeneca), anastrozole (Arimedex, AstraZeneca), letrozole (Femara, Novartis Pharmaceuticals Corp.), and exemestane (Aromasin, Pfizer, Inc.) for breast cancer; and thalidomide for multiple myeloma. Other sets of drugs to address a variety of oncology problems such as nausea will also fall under the new Part D benefit.

“Today most oncology drugs are administered in doctors' offices, but oral drugs and self-injected ones represent the wave of the future in oncology,” says Coleman.

“Getting these oral drugs covered has proven to be a fairly serious issue for oncologists,” explains Bailes, “If you are going to prescribe Gleevec, you have an ethical obligation to make sure that patients can get it. The current method by which physicians help patients in this regard is a mix. Doctors have sometimes steered patients towards private foundations that help pay for these drugs, but most patients have had to pay out of pocket. These are largely single source drugs and fairly expensive.”

Coleman points out that those medications that are now covered under Part B, including the several currently covered oral anticancer drugs, will continue to be covered by Part B. “It remains to be seen exactly how this will play out,” he adds. “This new benefit may create a tension. If there is an infused drug not covered by Part B, the doctor might write a prescription and then send the patient to the drug store [to bring it back for use]. That drug would then be covered by Part D. I am not sure how important this will be in the real world.”

A wave of information has been coming from CMS to potential participants since the spring of 2005. At that time, CMS began sending letters to various groups of people who are potentially eligible for the extra help with prescription drug coverage. CMS informed letter recipients that they should apply with the Social Security Administration to see if they qualify for extra help, but that they would also need to enroll in a Medicare prescription drug plan starting November 15, 2005.

Benefit Structures Taking Shape Now

“It will be interesting to see exactly what the plans look like,” says Coleman. “A number of plans are forthcoming now from insurance companies and HMOs [health maintenance organizations]. Eventually there will be a lot of them. HMOs have to offer a managed care plan with drug coverage and there will be a lot of freestanding plans. All those organizations have a lot of flexibility with regard to the structure of their plans. The law sets up a standard benefit but individual plans can deviate as long as they are actuarially equivalent, meaning that they will pay out the same amount of money. None of them will look exactly alike,” he says.

Managed care plans that participate in Medicare must offer at least one plan that has Part D prescription drug coverage. Such managed care plans are called Medicare Advantage (MA) programs, and the Part D drug benefit plan they create is called an MA-PD plan. Beneficiaries in such a managed care plan may receive their Part D drug coverage only through the MA-PD plan that their own organization offers.

A CMS representative describes the standard benefit structure as encompassing the terms that are listed below. As Coleman explained, plans do have the option of implementing alternative benefit structures as long as they are actuarially equivalent to the standard benefit described here (that is, they pay out the same amounts of money and provide the same level of coverage):

  • $250 deductible for 2006
  • Estimated monthly premiums of $32
  • 75% coinsurance up to the initial coverage limit of $2,250 for 2006
  • Catastrophic coverage that comes into play after a patient has spent $3,600 for out-of-pocket expenses (or $5,100 in total on prescription drugs). Under standard catastrophic coverage terms, the beneficiary will pay the greater of these amounts: 5% of the cost of the drug or a copayment of $2 for generics or preferred multisource drugs and of $5 for any other drug.

Coleman explains the reason for the gap in coverage that occurs in the time between when a patient has spent $2,250 and $5,100 on drugs. “The gap was a financial measure. Congress had to limit the amount of money that they spent on the program and that was the way that they limited it,” he says. He explains that during this “donut hole” period, there is no coverage and the patient is fully responsible for all drug costs. “But for low-income people there are no such gaps,” he says, “Among patients who don't have cancer, the low-income people are the really big beneficiaries. Dual-eligible [low-income people who qualify for both Medicare and Medicaid] people also face no gaps. Then there is a bracket of people with low incomes who can't qualify for Medicaid but also get a very beneficial benefit structure.”

He explains that “basically the beneficiary will pay a monthly premium. Lower-income beneficiaries will have more of their costs picked up than higher-income ones, but once anybody reaches a certain threshold, they will have 95% coverage. I do think that a lot of cancer patients will reach that threshold. When you pass that certain level, you have only a 5% copay. And for certain poorer individuals, there will be total coverage provided. It's somewhat complex.”

Greater Benefits for Those in the Greatest Need

Specifically, CMS states that if a single beneficiary has an annual income less than $14,355 or if a married one living with a spouse has an income less than $19,245, that person may qualify for extra help. (Beneficiaries at slightly higher income levels can also apply for the additional help if they provide half support to other relatives living in the same household, or if they reside in Alaska or Hawaii.) Such low-income beneficiaries can apply for the extra help through their local Social Security Administration offices or state medical assistance offices. Those who qualify will only pay a small amount per prescription.

CMS spokesperson Barbara Cebuhar explained the special benefits for poor patients this way: “For patients with very few resources, Medicare will cover approximately 95% of their prescription drug costs. This extra help usually means no premiums, no deductibles, no gap, and copays of only a few dollars for all prescriptions.” In May 2005, the Social Security Administration sent out four-page applications for this extra help and patients have been inquiring and will continue to inquire at doctors' offices about the new options.

As for the middle-class person, Coleman says, “If you are a not a cancer patient and [you] have relatively modest drugs bills, then $3,600 in out-of-pocket expenses could be somewhat burdensome. But if you have cancer and very high bills, that amount doesn't look so bad. Oncology drugs are very expensive, often $20,000 or $30,000 per year. After you spend $3,600 the benefit requires that you pay only 5% of the bills.” He continues, “In many ways, this is better than the coverage currently provided under Part B. That requires 20% copays across the board, no matter how high the bills go.”

CMS estimates that there are 14.4 million low-income Medicare beneficiaries eligible to participate in the new drug benefit's low-income subsidy program and that about 11 million will actually enroll in 2006. Among these people, there about 6.3 million full-benefit, dual-eligible, low-income beneficiaries who will have pay no premiums or deductibles and only nominal copays of $1 or $3 per prescription. For these dual eligible beneficiaries, the new benefit will pay, on average, 98% of their drug costs. A subset of the dual-eligible beneficiaries, approximately 1.5 million who are institutionalized, is totally exempt from cost sharing. They pay no premiums, no deductibles, no coinsurance, and no copayments.

The largest group of low-income assistance beneficiaries—full-benefit, dual-eligible individuals—will now receive drug coverage through Medicare. State Medicaid programs will no longer provide coverage for prescription drugs for full-benefit, dual-eligible individuals. There is, however, an exception: States may choose to cover certain drugs that will not be covered by Medicare. Full-benefit, dual-eligible individuals will now have the same benefits as other Medicare recipients—including a uniform, comprehensive drug benefit that is available in every state and provides a choice of drug plans—plus the low-income subsidies.

Full-benefit, dual-eligible individuals who do not choose a drug plan will be automatically enrolled in one. This will occur before January 1, 2006, the first day the new drug benefit becomes effective, to protect them from any gap in coverage as they transition from Medicaid to Medicare drug coverage. They will be able to opt out of a plan to which they are assigned and choose a different plan at any time. If they opt out of Part D entirely, though, they would then be responsible for paying for prescription drugs that would have been covered under the Medicare program.

The CMS Web site also states that about 3 million Medicare beneficiaries who are not full-benefit dual eligibles, but whose incomes are less than 135% of the federal poverty level ($12,569 for an individual and $16,862 for a couple in 2004) and who have limited assets, will also pay only a few dollars per prescription, with no premium or deductible. Medicare will cover 96% of their drug costs on average.

Furthermore, for about 1.6 million beneficiaries with incomes less than 150% of the federal poverty level and assets up to $10,000 (or $20,000 if married) in 2006, the Medicare beneficiary will only pay a $50 deductible, cost sharing up to 15% coinsurance, and a sliding-scale premium based on income, covering 85% of their drug costs on average.

Besides income, an applicant's assets will also be considered. However, only certain assets will be counted, including checking and savings accounts, stocks, bonds, and other assets that can be readily converted to cash. The value of real estate other than the family home will also be counted. CMS will not count the value of the family home and of personal belongings.

Spreading the Word, a Multipronged Effort

Help for oncologists who want to assist patients in sorting it all out is forthcoming from several reliable quarters. “ASCO will provide members with as much information as we can,” says Bailes. “We are in the process of developing our plans and may put on specific educational programs about the Part D benefit. One thing that is slowing down this process for us and for other large medical organizations is the fact that we need to see what Medicare is going to tell their beneficiaries about available drug plans. We don't want to give out any information that is inconsistent with what Medicare is saying.”

Coleman explains that, “CMS says that the Part D benefit is a voluntary program and they don't want to put doctors in the position of pressuring their patients. They are only asking doctors to provide information and referrals. In oncology, though, most of our patients will turn to us and we need to be able to provide fairly detailed information.”

One resource that is currently available to doctors is a “toolkit” that CMS has developed for health care professionals. The kit includes state phone numbers that an oncologist's office staff can call to help patients line up personalized support. Starting November 15, 2005, this support will be available to underpin patients' efforts to apply for extra financial help or to figure out the options. CMS states that its key message for physicians is this: “We don't expect you to become an expert on the coverage. Instead, we hope that you will encourage your patients to look into the benefit by calling 1-800-MEDICARE or going to where, on October 13, 2005, there will be a Medicare Prescription Drug Plan Finder installed that anyone can use to find out which plan will work for them.”

Cebuhar encourages physicians to “share the health professional tool kit far and wide. People can download it from or get a hard copy from their medical associations. We want to actively work with ASCO and other partners to spread the word about this benefit.”

CMS plans to have thousands of volunteers available to help patients apply for extra financial help as well as pick a plan starting in November. The volunteers will become involved through the efforts of various area agencies that assist aging citizens, the AARP [Editor's note: AARP was formerly the American Association of Retired Persons] and other partner organizations. CMS is deeply involved now in working with national medical associations and societies to develop materials and programs for distribution through medical offices.

CMS also plans to undertake extensive outreach through magazines, television, and radio. They have been visiting communities throughout the United States to raise awareness about Part D. “We hope to engage in a national conversation about the drug benefit the day after Thanksgiving,” says Cebuhar. “We envision everyone who has someone they love on Medicare working with that person to learn more about the benefit and how it can help them stay healthy and live longer.”

Some Imponderables, for Now

As mentioned in the preceding sections, there are kinks to work out. One kink observed by Coleman is this: “Under Part B, there are no restrictions on drugs. If a doctor wants to use a drug, they can use any drug and no prior authorization is required. They use a $20,000 or $30,000 drug and they get paid. Under Part D, though, the plans can impose prior authorization requirements. Basically, they have to cover all the drugs available but they can put restrictions on those drugs, and that is an angle for which no one has a feel yet—exactly what the plans will do in terms of imposing these prior authorization requirements.” Bailes points out that, “Part B drugs—injectable ones—will probably continue to be covered as they are now. CMS doesn't require them to be part of the Part D benefit although some plans may include them. There does not appear to be a movement toward streamlining everything under one benefit. CMS is incredibly focused right now on implementing Part D first.”

“Part B drugs, injectable ones, will probably continue to be covered as they are now. CMS doesn't require them to be part of the Part D benefit although some plans may include them.”

Joseph Bailes, MD

Coleman points out yet another possible “kink”: the fact that the Part D benefit may create a situation in which oncologists, for the first time, have to practice “step therapy.” “With step therapy, you have to use one drug, a cheaper one, before you use another more expensive one,” he explains. “The Part D program is going to much more closely resemble commercial insurance than the old Part B benefit did. This is not being run by the government. It's being run by private entities and it's intended to much more closely resemble commercial insurance. Under the Part D program, doctors will be expected to use certain formularies and management tools that were not part of the Medicare practice prior to this new benefit. Part D is intended to look like private insurance programs for the under-65 population, not like the existing Medicare program,” says Coleman.

Where Did Part D Come From?

In 1965, Congress first designed Medicare with the goal of providing health care for elderly and disabled Americans, explains Mark McClellan, MD, PhD. He serves as the administrator of the Centers for Medicare and Medicaid Services (CMS). At that time, says McClellan, “the practice of medicine was very different from what it is today.”

The original Medicare program paid for only “those services that are considered to be medically reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body member.” Until recently, the CMS did not have the authority to pay for prevention-oriented care or drugs or for a host of other modern medical interventions of proven value.

In the late 1980s, “Congress attempted to pass a catastrophic coverage bill,” explains Joseph S. Bailes, MD, “but they were forced to repeal it on account of the objections of seniors who thought that the premiums were too high.” Finally, in 2003, Congress passed the Medicare Modernization Act (MMA).

That law added several new preventive services to those services that Medicare already covered. The MMA also set the stage for the new Part D benefit, which will come into play next year. The law did so by providing some degree of temporary drug coverage, which included certain oral oncology drugs such as imatinib. That demonstration began in 2004 and expires at the end of 2005. Part D begins on January 1, 2006, the year that Medicare turns 40.

How Can Doctors Help?

All the key actors involved stress one major point: Doctors, burdened as they are with clinical and administrative duties, can best serve their patients by briefly discussing with them the potential importance of the new coverage and by steering them to good sources of information to help them make informed choices. CMS does not expect doctors or their staffs to serve as clearinghouses for information about specific details of specific plans.

Articles from Journal of Oncology Practice are provided here courtesy of American Society of Clinical Oncology