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CAPITOL PERSPECTIVES Why Is The President Attacking The Successful Medicare Part D Program? I n February, the Congressional Budget Office (CBO) — has increased from 60% in 2006 to 80% in 2011, which is released its new "baseline" projections for Medicare substantially higher than commercial plans. spending, and for the eighth time in nine years it reduced A deficiency of the drug benefit was addressed when the its projections for prescription drug spending under Affordable Care Act (ACA) required brand-name companies to Medicare Part D. Indeed, the 2013 estimate for the next 10 provide a 50% discount for drugs dispensed in the coverage years is 8.9% lower than last year's estimate and a staggering gap, i.e. the "donut hole," and also gradually eliminates this 45% less than initial estimates for the cost of the program. benefit gap over the next 10 years. It left the competitive Yet the Obama administration continues to advocate for the market delivery of the benefits in place. application of Medicaid rebates on low-income populations But less than a year after working with the President to enact in Medicare Part D, which would slap the pharmaceutical health reform, the pharmaceutical industry was shocked that industry with a more than $137 billion bill over 10 years for the President proposed applying Medicaid rebates to lowselling drugs to the program. What's going on here? Why is income individuals in the Medicare program. the administration attacking a program that is The Administration's argument was that the producing tremendous results for our seniors and pharmaceutical industry had received a "windfall" taxpayers alike? because dually eligible beneficiaries who formerly First, some background. In 2003, the Republican received their drug benefits through Medicaid Congress enacted a market-based drug benefit were no longer paying Medicaid rebates to states. that relied on competing prescription drug Medicaid rebates are nothing more than price plans to deliver pharmaceuticals to Medicare controls and based on a three-pronged formula: beneficiaries. The concept was simple but 1) a minimum rebate of 23%, 2) best price rebate revolutionary in health policy at the time — rather if a privately negotiated price discount exceeds than establishing price controls and government the minimum rebate, 3) any price increase that John McManus, formularies, trust seniors to choose the plans that exceeds inflation (measured by the consumer The McManus Group suit them best and rely on the market to contain price index) since launch of the product. Medicaid costs. Plans that were ineffective at negotiating rebates average about 45% for a typical brandwith pharmaceutical companies and encouraging name drug, but for some products they may be as generic substitution would be priced out of the market and fail high as 70% or more because of the penalty for price increases. to attract seniors. The administration's argument has several fundamental flaws: During congressional consideration of the bill, Republicans 1. Medicaid is a notoriously poor payer and should not be rejected an amendment that would have locked in prescription the standard for appropriate pricing in Medicare. There's drug premiums at $35 a month for every plan — the then a reason why the administration supported a provision CBO estimate of the "average" prescription drug plan. That in the ACA to increase reimbursements for primary care amendment would have destroyed the whole concept of the physicians in Medicaid to the Medicare level — very few program by undermining any incentive of plans to aggressively physicians accept Medicaid patients because they lose contain costs in order to attract more beneficiaries. Mandated money on those patients. equality is antithetical to capitalism. 2. Price controls inevitably accompany restrictions and Thank goodness that amendment was defeated. When the shortages. The Veterans Administration, which administers program actually rolled out a few years later, the average a price control regime, covers fewer than 40% of the most monthly prescription drug premium was $23 or 40% cheaper commonly used drugs by seniors while the most popular than CBO's estimate. Critics dismissed these low premiums Medicare prescription drug plans cover about 84% of as abject attempts to nefariously gain market share in order those drugs. Medicaid is similarly restrictive; the Kaiser to hike premiums in subsequent years. However, premiums Family Foundation reports that 16 states limit the number actually declined in the second year of the program. While of prescriptions a beneficiary may fill, which can be devastating for Medicaid beneficiaries. healthcare costs have increased, Medicare prescription drug premiums have remained stable at $30 for the past three years. 3. The Medicaid rebate would be applied to not just the 6 million dually eligible Medicare beneficiaries, but another And generic utilization — a metric for efficiency of the program 10 LifeScienceLeader.com April 2013