Drug makers rip off taxpayers with pricey drugs for Medicare beneficiaries

A safeguard for Medicare beneficiaries had turned into handle for drug makers to milk the taxpayer to the tune of billions of dollars from pricey medications, government numbers reveal.

The cost of Medicare's "catastrophic" prescription coverage shot 85 per cent in three years, from $27.7 billion in 2013 to $51.3 billion in 2015, the programme's number-crunching Office of the Actuary said.

Of the around 2,750 drugs covered by Medicare's Part D benefit, two pills for hepatitis C infection - Harvoni and Sovaldi accounted for around $7.5 billion in catastrophic drug costs in 2015.

According to the pharmaceutical industry which questioned the numbers, the cost was overstated because manufacturer rebates had not been factored in.

However, rebates were not publicly disclosed. Senator Charles Grassley, Republican -Iowa, has called the steep increase in spending "alarming."

According to commentators, Medicare's catastrophic coverage was originally meant to protect seniors with multiple chronic conditions from the cumulatively high costs of taking many different pills.

Beneficiaries paid 5 per cent after they had spent $4,850 of their own money. However, with a number of drugs now costing over $1,000 per pill, that threshold could be  crossed quickly.

Lawmakers who created Part D in 2003 also hoped that insurers would participate in the programme. Medicare paid 80 per cent of the cost of drugs above a catastrophic threshold that combined beneficiary and the insurer spending. That meant taxpayers, not insurers, bore the exposure for the most expensive patients.

Medicare's catastrophic protection kicked in after beneficiaries had spent a given amount of their own money, which is $4,850 for this year. The beneficiary paid only 5 per cent, while the insurer paid 15 per cent, and taxpayers covered 80 per cent.

Catastrophic spending formed a  large and increasing share of total costs, threatening to jeopardise Medicare's popular prescription plan.