How realistic is such a scenario? Here are a few facts that point to such an outcome:
Voluntary beneficiary enrollment has been far below expectations to date. More troubling, government estimates of the number
of eligible and enrolled patients changes with the assumptions used. For example, the Boston Globe points out that the government includes the following groups as Medicare enrollees even though their enrollment is not directly
- 3.1 million military and federal government retirees who received comprehensive drug benefits before the start of the Medicare
- 6.4 million retirees who received drug benefits from their former companies or unions
- 4.5 million people who already had drug coverage through Medicare Advantage plans
- 6.2 million dual eligibles.
Implementation issues have led to frustrated beneficiaries and public constituents, and may further dampen future enrollment.
In many instances, enrolled beneficiaries were not earmarked with the correct level of co-payment, deductible, or benefit
coverage. Some paid substantially more than their plan dictates. Plan systems are not up-to-date on the approved drug list,
and pharmacists are having difficulties approving enrolled beneficiaries with private plans. And as the Kaiser study documents,
states have to pick up the financial slack when the federal payment program fails.
Medicare is losing its potential negotiating power by allowing private insurers to negotiate with drug companies directly.
According to a study conducted by Families USA, the Veterans Administration (VA) offers better drug prices than private plans
for 19 of the 20 medicines examined. In addition, the VA discounts were two to three times greater than the private plans.
Highly publicized failures of the private sector in recent years have led the public to support a wider government role in
the marketplace. Private companies have failed to provide crucial elements of the "social safety net," including affordable
health coverage and pension benefits—leading many to support a broader public role in these areas. When the private sector
failed to safeguard airports, the federal government took over.
A similar situation is developing with the Medicare drug benefit. As the MMA implementation limps forward, and beneficiaries
become frustrated with the benefit structure and access, constituents may demand more federal involvement. So the federal
government may have to take a proactive oversight role, even as it collaborates with the private sector.
Strong beneficiary enrollment is necessary for the current approach to Medicare Part D to succeed. Failure of the market-oriented
approach could strengthen the hand of those who have been opposed to that approach from the beginning. In the current political
climate, with the Republicans weakened and the 2006 midterm elections approaching, advocates for a centralized government
program may gain the upper hand.
If this were to happen, the impact on the pharmaceutical industry could be severe. For example, if the government were to
implement one national formulary, pharmaceutical companies would face enormous pressure to achieve a favorable position on
that formulary. A vicious cycle of discounting and rebating to ensure formulary placement might lead to a downward spiral
in pharmaceutical prices. This has been the end result of other government-run health programs, such as Women, Infants and
In "Out of the Mouths of Babes" (Pharm Exec, September 2004), Mason Tenaglia recounts the effect of WIC on companies that started out with healthy market share and a
profitable business. He describes the slippery slope from what began in the early 1990s as an innocent increase in baby-formula
rebates to an all-out price war, in which major manufacturers—Abbott, Wyeth, and Bristol-Myers Squibb—cut their profit margins
to the bone in an effort to win government contracts. Depending on how strong the government role in pricing becomes, a similar
scenario could play out in the Medicare drug benefit.
Costs far exceed original projections, even though enrollment is strong. Enrollment meets or exceeds expectations, but costs per beneficiary
skyrocket under lax cost control by private plans (which increase benefits to attract enough beneficiaries to remain in business).
Cost overruns affect federal priorities, and the government becomes unwilling or unable to fund this program. Commitments
to war and disaster relief place strong pressures on an administration that prizes tax cuts for individuals.