Medicare Changes Take Aim at Drug Costs, Push Telemedicine

Jan 29, 2019

A series of changes to Medicare programs may lead to lower drug prices for some Medicare Part D and Medicare Advantage enrollees, expand services to include transportation and telemedicine, and bring hospice benefits to Medicare Advantage patients.

Drug plan changes

Under the Part D Payment Modernization initiative, the Center for Medicare Services is revising the way Medicare compensates private insurers, with the intent of increasing competition and creating incentives for companies to lower drug prices and reduce costs for plan enrollees.

Under the current system, once a patient’s spending reaches the “catastrophic” threshold, Medicare picks up 80% of the cost of the individual’s drugs. Insurers have designed their plans to get patients to the catastrophic threshold as quickly as possible, so they can qualify for the higher federal subsidies.

As a result, federal spending for drugs under the catastrophic phase has skyrocketed 17% per year over the last decade, rising from $9.4 billion to $37.4 billion.

“This structure introduces perverse incentives to push patients to the catastrophic phase and leave plans with little reason to negotiate lower costs for the highest spending patients,” said the Center for Medicare Services’ administrator, Seema Verma. “This means that plans are more likely to manage drug spending for low-cost patients, since plans are responsible for a greater share of drug costs at their level for the benefit structure.”

Under the new plan, which takes effect in 2020, carriers will be picking up a greater share of the prescription drug tab for patients in the catastrophic spending category. In return, they will have some opportunities to share in overall cost savings under the plan. Federal officials estimate that the initiative will save taxpayers around $2 billion per year.

The Part D Payment Modernization Initiative is part of President Trump’s broader Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs. The plan will create more incentives for plan participants, carriers and care providers to choose lower-cost drugs where possible.

Value-based insurance design benefits expansion

At the same time, Medicare is expanding a new “value-based” benefits model to all 50 states. Under the scheme, called V-BID (Value-Based Insurance Design), Medicare Advantage plans will have more flexibility to offer cost-saving alternatives:

  • Lower copays
  • Better plan design for lower-income beneficiaries
  • Assistance with treatment-related transportation costs
  • Incentives for preventive care and healthy lifestyle changes.


V-BID would also allow plans to cover telemedicine consultations – a key change that could lower overall costs while allowing plans to extend their reach into previously underserved rural areas where they had difficulty covering because of federal network adequacy rules.

The change may help improve competition and choice in underserved areas.

Hospice benefits

Plans are also afoot to allow Medicare Advantage plans to start offering Medicare’s hospice benefit beginning in 2021.

Today, the hospice benefit is covered separately under fee-for-service Medicare, so patients do not have a single provider network that is managing all of their conditions and taking responsibility for their overall health.

The change is designed to increase access to hospice services and encourage better coordination between patients’ hospice services and their other clinicians.

“These two models ignite greater competition among plans, creating pressure to improve quality and lower costs in order to attract beneficiaries,” Verma said.