President Calls for Federal Drug Price Negotiation in Medicare Part D

Published May 8, 2015

President Barack Obama’s latest budget proposal calls for the federal government to negotiate Medicare Part D drug prices directly with pharmaceutical companies.

Under Medicare Part D, seniors with Medicare can sign up for prescription drug plans offered by competing companies. The insurers negotiate prices with drug companies and offer a wide variety of benefit and pricing levels to Medicare beneficiaries. The plans are subsidized, with the government often picking up the entire premium.

The program has been wildly successful since the Medicare Modernization Act of 2003 was passed, resulting in dramatically lower costs than expected when announced.

John R. Graham, a senior fellow in health care policy at the National Center for Policy Analysis, says directly negotiating prices would work against the design of the program.

“There is no benefit to such a move,” Graham said. “The Medicare Part D drug benefit has come in at a cost billions of dollars less than originally estimated. This success accounts for 60 percent of the slowdown in the rate of growth in Medicare spending that is improving government finances.”

Diverse Group Opposes Bill

A letter endorsed by a diverse group of more than 200 health and consumer organizations urged the Centers for Medicare and Medicaid Services (CMS) to withdraw the proposal. The group includes patient advocates such as the AIDS Alliance, retailers including CVS Caremark and Walmart, insurers, and drug manufacturers.

“The rule would dramatically expand the federal government’s role in Medicare Part D despite the fact that there is no compelling reason for doing so,” the organizations wrote to CMS. “Reshaping Part D in this way will neither improve quality and affordability, nor incentivize plan innovation.”

Also signing the letter was the Pharmaceutical Research and Manufacturers of America (PhRMA).

“PhRMA does not support proposals that fundamentally alter the structure of the successful Medicare Part D program,” said spokesperson Allyson Funk. “The program keeps costs low for both beneficiaries and taxpayers through competition and negotiation, while improving access to medicines and holding down other health care costs.

“Since Medicare Part D’s enacting legislation was signed into law in 2003, the nonpartisan Congressional Budget Office has been consistent and clear in its views that … private plans can effectively negotiate savings on Medicare drug costs, and [that] striking the noninterference clause of the MMA, which prevents the Secretary of HHS from interfering in the negotiations between Medicare Part D plans and drug manufacturers, is unlikely to achieve any significant savings unless the government restricts beneficiary access to prescription drugs or fixes prices,” said Funk.

CBO says much of the Medicare Part D savings comes from insurers advocating the use of generic drugs in place of brand names as generics become available.

Price Hikes Predicted

The proposal would raise prices to consumers, Graham says.

“One consequence is that drug prices charged to private payers in the commercial market would increase, as drug makers tried to counter the effect of the federal price controls,” Graham said.

Loren Heal ([email protected]) writes from Neoga, Illinois.