Part D Under Attack

Oct 01, 2008

Jill Wechsler
Even though the Medicare prescription drug benefit has provided access to medicines at less-than-anticipated cost to the government—and lower out-of-pocket spending for seniors—Democrats and consumer advocates want to overhaul the program. Critics contend that the federal government can negotiate lower prices with pharmaceutical companies than those obtained by private insurers operating prescription drug plans (PDPs). They charge that the program is too complex and confusing for elderly beneficiaries, particularly those in the infamous "donut hole," which is claiming more Medicare patients than anticipated.

Leading the charge for reform is Rep. Henry Waxman (D-CA). At a July health policy conference sponsored by CBI, Waxman described Part D as "a serious mistake that is not working well." Seniors are happy because they had no drug coverage at all before Part D, Waxman said, but it's been difficult for beneficiaries to shop around for the best plan because they don't know which drugs are covered, and because copays and premiums change each year. And beneficiary enthusiasm may wane as costs go up: The Centers for Medicare & Medicaid Services (CMS) reported in August that the average PDP premium would be $28 a month in 2009—that's up 12 percent from this year.

Windfall Profits

Moreover, pharmaceutical companies are raking in big profits from Part D, Waxman claims, because they no longer have to pay rebates to state Medicaid programs for drugs delivered to low-income seniors now covered by the Medicare drug benefit. As chairman of the House Oversight and Government Reform Committee, Waxman unveiled a study at a July hearing citing a $3.7 billion windfall for pharma in 2006 and 2007 due to higher prices paid for drugs provided to "dual eligible" beneficiaries. Top revenues went to Johnson & Johnson, which Waxman says earned over $500 million in additional profits on its antipsychotic medication Risperdal, and Bristol-Myers Squibb, which gained $400 million in Medicare coverage for its stroke medication Plavix.

Another target for reformers is the coverage gap in the Part D benefit, which hit more than a quarter (26 percent) of Part D enrollees in 2007, according to analysis issued in August by the Kaiser Family Foundation (KFF). This means that about 3.4 million Medicare beneficiaries, largely seniors with chronic health problems, had to pay the full cost of their meds for at least part of the year. A significant number of seniors consequently stopped taking prescribed medications, and some switched to other drugs.

Industry patient assistance programs provide minimal help to low-income seniors struggling to meet Part D premiums and co-pays, according to the Government Accountability Office. A GAO report issued last month finds many PAPs are not open to Part D enrollees, and the programs are diverse and confusing.

At a minimum, Democrats want to repeal the "non-interference" clause governing Part D, which prevents Medicare from negotiating prices and discounts for covered drugs. Opponents of such a move, which include insurers and PBMs (pharmacy benefit managers) as well as pharma companies, claim that centralized price negotiations won't reduce spending and might actually boost prices if manufacturers fear they have to give everyone their deepest discounts.

Nevertheless, both Presidential candidates promise to allow government drug price negotiating, and Congress is likely to support such a move. Few legislators understand the nuances of the policy, commented former Rep. James Greenwood, who is now president of the Biotechnology Industry Organization (BIO). He told reporters at a briefing last month that members of Congress assume that either Medicare negotiates prices, or drug companies charge whatever they want; they fail to realize that every drug under Part D is subject to "very tough negotiations" between the private parties.

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