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Expand chart
Data: Medicare Payment Advisory Commission; Chart: Andrew Witherspoon/Axios

There's been an explosion in spending on specialty drugs within Medicare's prescription drug benefit over the past decade, and it may be warping insurers' incentives to keep overall costs down.

The bottom line: A single expensive prescription now sends hundreds of thousands of beneficiaries straight into the benefit's "catastrophic phase," where the government picks up most of the tab and insurers have little incentive to manage costs.

By the numbers: In 2007, only 6% of part D spending was on specialty drugs. By 2017, they accounted for 25% of spending, according to the Medicare Payment Advisory Commission's 2019 report.

  • While only 33,000 beneficiaries filled a prescription that was expensive enough to place them in the program's catastrophic phase after a single claim in 2010, by 2016, that number had risen to 360,000.

Once a beneficiary reaches the catastrophic phase, the government covers 80% of their prescription drug costs. The insurer pays 15% and the enrollee pays 5%.

  • Experts say this removes the incentive for plans to manage beneficiaries' spending, driving up costs.
  • Along with other changes to Part D, "the expanding role of high-cost medicines may be eroding plans' incentives for and ability to achieve cost control," MedPAC's James Mathews wrote in congressional testimony delivered yesterday.

The big picture: Prescription drug spending is increasingly driven by specialty drugs, a trend that isn't going to change anytime soon.

  • Drug development is heading more in this direction, as new therapies are increasingly individualized and complicated. This means they often come to market with a high price tag.
  • In 2018, 39 of the 59 new drugs that came to market were specialty drugs, according to a recent IQVIA report.

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