First Indicator of 2013 Part D Bids: Very Aggressive

By James Gutman - August 10, 2012

It isn't often when three leading actuaries who work with Medicare Advantage and Part D plans all say they were "surprised" by a key bid-data measure released by CMS. But this is what happened Aug. 6, when the agency reported a $79.64 figure for the Part D national average monthly bid amount for 2013. That figure is a weighted average of the standardized bid amounts for each stand-alone Prescription Drug Plan (PDP) and MA prescription drug (MD-PD) plan and is down from $84.50 in 2012. While all three actuaries I queried had expected some decline, they all acknowledged not expecting anything like the nearly 6% drop CMS unveiled.

So what does it mean? It could be a variety of things, they told me, but there is one that seems clear: Major PDP players have decided to be very aggressive in seeking members — including low-income-subsidy beneficiaries auto-assigned to only PDPs that bid below the benchmark or, in the case of already-assigned beneficiaries, within a small "de minimis" range above the benchmark. This strategy was not uniformly in evidence last year, when, for instance, UnitedHealth Group bid above the benchmark in many regions and wound up losing lots of PDP beneficiaries for 2012 as a result. Since the average bid figure results from enrollment-weighted calculations, the actuaries surmise that United was not going to let this happen again for 2013. And another big PDP operator, Caremark, already has said it bid below the benchmark in 20 regions and within the de minimis range in 10 others, leaving only four regions above the benchmark.

Are plans such as these making the right decisions? Are the savings PDPs can achieve from taking advantage of the patent expirations of major brand-name drugs and thus the increasing use of generics enough to justify this kind of aggressive bidding? Have the plans lowered their administrative costs and improved their pharmacy benefit manager contracts enough for that? And what does this mean for smaller PDPs and for MA-PDs? Is the migration of Part D beneficiaries to lower-cost plans such an ingrained trend now that the days of enhanced-benefit products and smaller plans may be numbered?